A N N U A L R E P O R T 2 0 1 4
Taking
Taking
the future
in hand
in hand
4
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table of contents
6
12
16
18
20
26
71
72
73
131
132
134
135
136
Message from the President and Chief Executive Offi cer
Understanding Our Corporation and Our Results
Cascades and Its Employees
Community Involvement
Management’s Discussion & Analysis
Sensitivity Table
Management’s Report to
the Shareholders of Cascades Inc.
Independent Auditor’s Report to
the Shareholders of Cascades Inc.
Consolidated Balance Sheets
Board of Directors
Historical Financial Information — 10 Years
Summary of Production Capacity
Results — Sustainable Development Plan
Cascades Worldwide
The annual general shareholders’ meeting will be held on Thursday, May 7, 2015, at 11:00 a.m. at Cinéma Excentris,
3536 Saint-Laurent Blvd. in Montréal, Québec.
Cascades Inc.’s 2014 Annual Information Form will be available, upon request, from the Corporation’s head offi ce
as of March 31, 2015.
This report is also available on our website at: www.cascades.com
TRANSFER AGENT
AND REGISTRAR
Computershare Investor
Services Inc.
Telephone: 1-800-564-6253
HEAD OFFICE
Cascades inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec
J0A 1B0 Canada
Telephone: 819-363-5100
Fax: 819-363-5155
On peut se procurer la version française du présent rapport annuel
en s’adressant au siège social de la Société à l’adresse suivante :
Secrétaire corporatif
Cascades inc.
404, boul. Marie-Victorin
Kingsey Falls (Québec) J0A 1B0
CANADA
INVESTOR RELATIONS
For more information, please contact:
Riko Gaudreault
Director, Investor Relations
and Business Strategy
Cascades Inc.
772 Sherbrooke Street West
Montréal, Québec
H3A 1G1 Canada
Telephone: 514-282-2697
Fax: 514-282-2624
www.cascades.com/investors
investisseur@cascades.com
cascades
at a glance
$3,561
Million
in sales1
$340
Million
in OIBD1,2
Packaging products
71%
74%
of sales3
of oibD4
Containerboard
32% of sales3
44% of oibD4
LARGEST PRODUCER
OF CONTAINERBOARD
IN CANADA
6TH LARGEST
IN NORTH AMERICA
Boxboard Europe
23% of sales3
19% of oibD4
2ND LARGEST
PRODUCER
IN EUROPE
Specialty products
Specialty products
16% of sales3
16%
11% of oibD4
11% of oibD
LARGEST
PAPER
COLLECTOR
IN CANADA
Tissue papers
Tissue papers
29%
29%
26%
of sales3
of sales
of oibD4
LARGEST PRODUCER
IN CANADA
4TH LARGEST
IN NORTH AMERICA
cAscADes 2014
3
1 Excluding discontinued operations.
2 Excluding specifi c items.
3 Before inter-segment eliminations.
4 Excluding specifi c items and corporate activities.
3
2
1
4
7
6
5
upholding
upholding
innovation
We are focused on the needs of consumers and working hard to design and
manufacture innovative products. These products have added value, are better
adapted to today’s realities, and are more effi cient and greener than ever before.
1 Made mainly from recycled fi bres, the CASCADES EXTREME® PAPER TOWEL offers extreme
absorbency thanks to the unique Absorbent Cells® technology.
2 Offering the choice of a variety of formats and features, the BENPACTM CLEAR CONTAINER
truly highlights the products while maximizing shelf space.
3 The APPLE BASKET is made from recycled and completely recyclable corrugated board.
4 The ULTRATILLTM FRESH MUSHROOM TILL is sturdy, effi cient and recyclable.
5 A CHEESE BOX made from 100% recycled and recyclable cardboard.
6 EVOK® is the fi rst food tray in North America made from polystyrene foam containing 25%
recycled materials.
7 POUL-TRAYTM PACKAGING FOR WHOLE CHICKEN enhances shelf presentation
and reduces the time required for packing.
cAscADes 2014
5
MESSAGE FROM ThE PRESIDENT AND ChIEF ExECUTIvE OFFICER
Seizing
Seizing
the opportunity
to move forward
to move forward
Dear Shareholders and Partners:
Throughout 2014, Cascaders gathered to
cele brate our Corporation’s 50th anniversary.
These proud celebrations were a reminder of
Cascades’ ongoing ability to adapt and inno-
vate in order to capitalize on opportunities
and to meet diverse challenges. During the
past fi scal year, we again demonstrated our
ability to adapt by taking concrete steps to
better position the Corporation for future suc-
cess. In fact, certain actions carried out this
past year were among the most signifi cant
since the launch of our strategic plan at the
beginning of 2012.
mArio plourDe
President and Chief Executive Offi cer
6
6
ANNuAl reporT
First, we continued to modernize our assets with targeted investments. To
expand our reach into the American market, the Tissue Papers Group completed
the installation of a new paper machine on the West Coast and began
construction of a new converting centre in the southeastern United States. In the
Packaging Products sector, we continued to modernize our corrugated packaging
converting activities with the acquisition and installation of new equipment
in three of our Québec plants. In Italy, Reno de Medici moved forward with
an important upgrade to one of its paper machines.
We also made the decision to focus our activities in the strategic packaging
products and tissue papers sectors. With this in mind, we resolved to withdraw
from certain less promising market sectors. We made the difficult but necessary
decision to sell our North American boxboard and fine papers assets. In addition,
we ceased our kraft paper manufacturing activities, and closed a boxboard mill
in Sweden. Although some of these decisions had a negative impact on our 2014
net results, they will streamline our business model and improve the Corporation’s
financial flexibility. At this stage, it is safe to say that, of the four pillars of our
strategic plan—modernizing, optimizing, innovating and restructuring—the
restructuring of our non-performing activities has been largely completed.
With a view to making optimal use of our capital, we continued our efforts to
improve our working capital management. We also took advantage of favourable
markets to refinance more than $800 million of our long-term debt at
advantageous conditions, which strengthened our capital structure and lowered
borrowing costs.
Our optimization goals also target our processes, and the Corporation continues
to review its business practices while upholding the values that have driven
it for 50 years. We continue to encourage a highly entrepreneurial manage-
ment culture in parallel with a rigorous business process review program,
ONE Cascades, which was launched with the aim of standardizing and optimizing
our work methods. This initiative goes hand-in-hand with the technological shift
we have undertaken with the implementation of our integrated management
software system. In addition to generating savings, the process will improve
our internal cohesion and strengthen our customer approach.
We resolved to withdraw
from certain less promising
market sectors.
Because our customers are our raison d’être and we wish
to improve and streamline our service. Now more than
ever, we want to offer our customers innovative products
of the highest quality that comply with the strictest
environmental standards under the best possible con-
ditions. In this report, we aim to highlight the different
products manufactured by Cascades and its subsidiaries.
A quick look around is proof of just how present we
are in your daily lives, from tissue paper products
to waste paper collection
and corrugated boxes
and
for consumer products.
Although not all of our products display our logo, they
are nonetheless a source of pride and a sign of half
a century of expertise in sustainable products.
specialty packaging
7
CAsCAdes 2014
MESSAGE FROM ThE PRESIDENT AND ChIEF ExECUTIvE OFFICER
Innovation remains an important strategic focus, and we will continue to work
tirelessly to design new products. You will soon see the results of these efforts on
grocery store shelves, in the form of more lightweight and eco-friendly packaging
that is every bit as efficient as before. It takes considerable effort and ingenuity
to design, manufacture and distribute consumer goods. Cascades accomplishes
this thanks to the dedication of its employees and the support of its partners.
I would like to thank them for their efforts. We were able to count on everyone’s
support throughout the year as we repositioned and improved our performance.
We will continue to work tirelessly
to design new products.
Overall, the results for 2014 show improvements compared with last year,
with a stronger capital structure at year end and increased productivity,
revenues and return on capital.
In summary, the Containerboard Group had a good year, with EBITDA2 increasing
10%. The decision to sell our North American boxboard activities will allow
our team to focus its strategy entirely on the containerboard market. The
year 2014 was also marked by a strategic repositioning of the Specialty
Products Group with the sale of its fine papers assets and the closure of the
kraft paper mill. In Europe, results were satisfactory considering the economic
environment, and cash flows continue to progress. As for the Tissue Papers
Group, it began action on two important new strategic projects despite difficult
market conditions.
SALES (MILLIONS CAN$)
3,750
3,500
3,250
3,000
2,750
3,561
3,370
3,141
12
13
14
OIBD1 (MILLIONS CAN$)
400
350
300
250
200
150
342
340
285
12
13
14
return
on capital employed1
6.0%
4.0%
2.0%
0.0%
4.0%
4.1%
2.8%
12
13
14
8
1 Refer to footnotes in the “Financial Highlights” section.
2 Excluding specific items and discontinued operations.
AnnuAl report
Total shipments and
capacity utilization rate1 (’000 s.t. and %)
3,250
3,000
2,750
2,500
2,250
2,765
92
12
2,899
2,924
93
13
93
14
100%
97%
94%
91%
88%
In 2015, we expect to benefi t from favourable exchange rates, stable recycled
fi bre costs, lower oil prices and economic recovery in the U.S. In addition,
the fi rst-quartile recycled linerboard Greenpac Mill will make a positive contribu-
tion to our net results for a fi rst full year in 2015. In the tissue paper sector, our
operational platforms that serve high growth regions in North America will
gradually commission or accelerate the ramp-up of their new equipment this
year. Our margins should benefi t from the sale and closure of certain units, as
well as a decrease in borrowing costs. We will maintain our objective of
lowering our fi nancial leverage by managing our free cash fl ow responsibly,
which among other things will entail reducing capital expenditures. Finally,
I would like to recognize the signifi cant achievements of Boralex, which,
in 2014, improved its geographical diversifi cation and growth potential,
thereby increasing the value of our investment in our view.
Net Debt / OIBD1
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x
5.0x
4.6x
4.7x
12
13
14
conditions are favourable and
we are optimistic as we look to the future.
We therefore expect to provide our shareholders with increased returns while
continuing to respect the environment and allowing our many employees to work
and prosper in the communities where we operate.
Conditions are favourable and we have taken positive action in recent years, so
we are optimistic as we look to the future, which is truly in our hands.
Mario Plourde
President and Chief Executive Offi cer
cAscADes 2014
9
1
3
2
4
5
6
7
8
9
holding on to
holding on to
What matters
We have developed a level of services that meets market requirements: hygiene,
conservation, handling, transportation and service. Our unique expertise
in transforming recycled materials has made us an industry leader.
1 Stylish, elegant and designed for high capacity, the TANDEM®+ NO-TOUCH TOWEL DISPENSER
allows establishments to maximize hygiene and reduce operating costs.
2 The THERMAFRESH® COOLER offers an innovative and ecological packaging solution
for shipping products such as fresh foods in controlled temperatures.
3 ULTRACELLTM egg fi ller fl ats are made from 100% recycled fi bre.
4 STRAWBERRY BASKET made from 100% recycled corrugated board. The integrated
handle—a Cascades innovation—eliminates the use of plastic or wood, making the basket
100% recyclable.
5 STRAWBERRY BASKET SHIPPING BOXES made from 100% recyclable corrugated board.
6 CASCADES® ANTIBACTERIAL PAPER TOWELS are made from 100% recycled fi bre and
are recyclable, compostable, biodegradable and whitened without chlorine.
7 Soft, durable and absorbent, PRIVILEGE® AIRLAID NAPKINS are the ideal alternative
to cloth napkins.
8 Cascades PARTITIONS are used as protective dividers in beer and wine cases.
9 FRESH PRODUCE BOXES made from recycled corrugated board with a waterproof
coating—ideal for protecting or displaying fruits and vegetables.
cAscADes 2014
11
UNDERSTANDing
UNDERSTANDing
OUR CORPORATION
AND OUR RESULTS
AND OUR RESULTS
Giving a second life to recovered materials: a simple idea that inspired the creation of Cascades 50 years ago. The Corporation is now
the largest collector of recycled papers in Canada, a strategic advantage. Our business model has signifi cantly evolved throughout the years
but the common denominator that defi nes our products remains that they are made from recycled materials. Our integration strategy, both
upstream and downstream, can be summarized by what we call the “closed-loop system1”.
Recycled fibre
purchased
1.15 M s.t.
Grades
Brown 66% - White 25%
Groundwood 9%
RECYCLED FIBRE
PROCUREMENT
Recycled fibre purchased
0.41M s.t.
Integration3: 30%
Recycled fibre and deinked
pulp consumption
1.65M s.t.
Recycled
fibre
processed
& brokered
1.43M s.t.
18 UNITS
RECOVERY
Recycled
fibre sold
0.97M s.t.
MARKET
Rolls and
parent rolls
sold
1.78M s.t.
(including
1.09
in Europe)
Deinked
pulp sold
0.04M s.t.
27 UNITS1,2
MANUFACTURING
Recycled fibre
purchased (Europe)
1.02M s.t.
Virgin fibre
0.42M s.t.
Virgin pulp
0.19M s.t.
Internal recycled
fibre purchases
0.08M s.t.
Converted products sold
1.14M s.t.
Rolls and parent rolls
0.87M s.t.
Integration3: 56%
52 UNITS2
CONVERTING
1 2014 data including 100% of Reno De Medici; excluding the Greenpac mill and its production and consumption.
2 Including the integrated tissue paper manufacturing and converting units.
3 North America only.
12
ANNuAl reporT
Illustrative distribution
of our sales on the market
We have decided to focus on packaging products and tissue papers, the two healthiest sectors of the
paper industry. This balanced business model has allowed us to withstand many challenges and grow to
become one of North America’s major manufacturers of corrugated packaging containers, tissue papers
and specialty packaging products.
CONTAINERBOARD
BOXBOARD EUROPE
By country (%)
By country (%)
27
73
Canada
United States
10
11
12
32
14
21
Italy
France
Rest of Western Europe
Overseas
Germany & Austria & Switzerland
Eastern Europe
SPECIALTY
PRODUCTS
By country (%)
10
47
43
Canada
United States
Others
TISSUE PAPERS
By country (%)
27
73
Canada
Retail 54%
Away-from-Home 46%
United Sates Retail 47%
Away-from-Home 53%
By product — manufacturing (%)
By product (%)
By segment (%)
By market (%)
20
34
46
Semi-chem medium
Recycled medium
Linerboard
By industry — corrugated boxes (%)
5
11
18
46
20
Agriculture and meat
Chemicals and plastics
Other industries
Papers and wood
Food and beverages
cAscADes 2014
cAscADes 2014
14
86
White-lined chipboard (recycled)
Folding boxboard (virgin)
23
10
23
44
Recovery and recycling
Industrial packaging
Consumer products packaging
Other products
15
42
43
Away-from-Home Branded 52%
Private Label 48%
Branded 15%
Private Label 85%
Retail
Parent rolls
13
1
2
3
6
4
5
8
9
777
efficiency
at hand
at hand
So that all of our initiatives converge toward producing quality products
and improving our performance, we are constantly adapting our processes
and carefully targeting the right materials, the best technology and the most
functional designs.
1 Our MOVING BOXES are made of 100% recycled corrugated board and guarantee
maximum resistance.
2 “MY PRETTY PLAYHOUSE” is entirely made from 100% recycled recyclable cardboard.
3 RECOVERY: Cascades is Canada’s largest collector of recyclable papers.
4 ULTRAFITTM CUP CARRIERS, an innovative design with unique features, made from
100% recycled fi bre.
5 EKO-SENSTM BAKERY PACKAGING is transparent, lightweight and rigid. The containers
have tight-fi tting lids and contain 60% recycled PETE.
6 Decorative panels made from Cascades MULTIBOARDTM LAMINATED PAPERBOARD
are used to manufacture furniture backer for ready-to-assemble furniture.
7 The cellular structure of TECHNICOMB® HONEYCOMB PAPERBOARD is light, provides
high-pressure resistance and is 100% recyclable.
8 In addition to being hypoallergenic, dye-free and fragrance-free, CASCADES® FACIAL TISSUES
are made from 100% recycled fi bre.
9 MULTIBOARDTM LAMINATED PAPERBOARD can be used as a structural component
in books and binders.
cAscADes 2014
15
CASCADES AND ITS EMPlOYEES
Hand in hand,
we go further
Day after day, Cascades works hard to recognize
the efforts of the 11,000 people behind its success,
focusing its energy on offering interesting challenges
in a safe and friendly work environment.
Number of employees close to 11,000
AverAge yeArs of service 12.7
AverAge Age 44.5
AnnuAl report OUR 50TH ANNIVERSARY
CELEBRATIONS:
OUR VALUES, OUR FUTURE
In 2014, Cascaders marked the Corporation’s history by celebrating its
50th anniversary and paying tribute to its three co-founders, Bernard,
laurent and Alain lemaire. Numerous celebrations were organized
throughout North America and in Europe by hundreds of volunteers and
business partners. These festivities allowed employees to reaffi rm their
values and increase their pride in being Cascaders by celebrating the
milestones in the Corporation’s history.
COMMITTED
TO THE CUSTOMER
Cascades has begun a thorough revision of its business processes,
with the aim of standardizing and optimizing its practices, while at the
same time improving customer service. ONE Cascades will improve the
Corporation’s effi ciency and profi tability by promoting the implementation
of best practices and creating greater synergy between the groups. This
initiative is relevant now more than ever, as we must continually adapt
to changing markets in order to better meet our customers’ needs.
Taking charge of its resources
Cascades considers its employees its most valuable resource. For the
Corporation to reach its business objectives, it is vital that all employees
be fully committed. Consequently, the organization will spend the next
three years revising its human resources processes using a competency-
based management model. This process will result in better commu-
nication of Cascades objectives to all employees, so that they will
understand the role they play, how they can contribute and how they
can develop the skills they need, and ultimately so that they receive due
recognition for their hard work. Through this continuous improvement
initiative, Cascades aims to strengthen its
values and employee commitment,
attract and retain qualifi ed personnel,
and achieve even greater effi ciency
as a company.
Performance
management
Succession
planning
Recruiting
and hiring
Competency-
based approach
Compensation
Career
planning
Training and
development
Safety first
osHA frequency rate = number of work-related injuries
causing loss of time, temporary reassignment
or the need for medical treatment
2014
2013
2012
2011
2010
3.3
3.2
3.8
4.3
4.9
Employee
training
$12.5 million
iNvesTeD iN TrAiNiNg
671,869
Hours of TrAiNiNg
9,155
employees TrAiNeD
Committed
to the next
generation
of employees
469
sTuDeNTs HireD
120
iNTerNs
cAscADes 2014
17
COMMUNITY INvOlvEMENT
Hand in hand,
with the
with the
community
Cascades and its employees are proud to actively
contribute to the development of their communities,
keeping them healthy and vibrant. In the true spirit
of giving, Cascades is committed to numerous causes,
is involved with various organizations and encourages
its employees to take part in activities and events
that support social growth.
health
Annual cycling event
fondation du centre de cancérologie charles-bruneau
Mario Plourde, President and Chief Executive Offi cer
of Cascades, and Annabelle Gauthier, enjoying
a stopover in Kingsey Falls during the Tour.
AmouNT rAiseD
$230,000
11
1
BRP-Cascades Golf Tournament
fondation du centre hospitalier de l’université de sherbrooke
The Cascades Green Team helps to raise awareness
about sound waste management among tournament participants.
AmouNT rAiseD
$1.9 million
COMMUNITY
CENTRAIDE CENTRE-DU-Québec
The organizing committee for the 2014
regional fundraising campaign was proud
to hand over a record amount.
DoNATioN
$310,000
2
3
18
ANNuAl reporT
sport
Education
4
7
Fondation de l’athlète d’excellence du Québec
Mario Plourde and the recipients at the 2014 scholarship awards ceremony.
$54,000
iN scHolArsHips
forces avenir
For ten years, Cascades has been encouraging students to get involved
in projects that contribute to the development of a responsible and active society.
Hugo D’Amours, Vice-President, Communications and Public Affairs, Cascades,
with the students from the Eco Youth Project, recipient of the Environment Award.
environment
5
6
CASCADES ALSO ENCOURAGES OUR BEST YOUNG OLYMPIANS
Marc-Antoine Gagnon, moguls athlete, who placed fourth
at the Sochi 2014 Olympic Games.
Alex Harvey, world champion and Olympic cross-country skier.
8
ACTION RE-BUTS AND QUéBEC
WASTE REDUCTION WEEK
Cascades took part in Disco Soupe, a soup prepared
with rejected vegetables as part of Québec Waste
Reduction Week.
PHOTOS CREDITS
1
2
3
4
Cascades
La Tribune
Cascades
Fondation de l’athlète d’excellence du Québec
5 Diane Jacob
6 Michel Arnautovitch
7
Forces Avenir
8 Nicolas Marchand, Québec Waste Reduction Week
cAscADes 2014
19
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL OVERVIEW - 2013
The year 2013 was highlighted by favourable market conditions as we benefited from higher selling prices in our containerboard activities,
stable recycled fibre prices and a favourable Canadian dollar. We were also able to increase our total shipments by 5%, when excluding
discontinued operations. On the other hand, business conditions remained challenging in Europe and our operational efficiencies in some of
our manufacturing facilities in North America were not up to our normal standards. We also incurred additional costs related to our initiatives
of upgrading our information systems and the re-engineering of our business processes. As a result we improved our operating results for
the second year in a row as our operating income before depreciation and amortization (OIBD), excluding specific items increased by 20%
over 2012, excluding the effects of discontinued operations.
FINANCIAL OVERVIEW - 2014
The start of 2014 was marked by slower-than-usual business activities in January and February, combined with harsh weather conditions
prevailing in Québec, Ontario and the U.S. Northeast. This led to lower-than-expected sales volumes and higher energy, transportation and
logistics costs in the first quarter. However, our results for the year benefited from the depreciation of the Canadian dollar against the U.S.
dollar and the Euro, as well as higher selling prices in our Containerboard segment, but these factors were more than offset by higher raw
material costs compared to last year due to increased use of virgin pulp and external purchases of containerboard parent rolls, mainly from
Greenpac.
During the year, we completed several business transactions with the intention of focusing our efforts and resources on strategic core businesses
we want to grow in the future. Some of these transactions were presented as discontinued operations. See the ''Business Highlights'' section,
on page 29, and Note 5 of the Audited Consolidated Financial Statements, for all the details regarding the Discontinued Operations. The
following table reconciles the 2014 and 2013 presentation of our results and cash flow:
(in millions of Canadian dollars)
Results
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and
amortization), net of intercompany transactions
Depreciation and amortization
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Loss on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Loss on refinancing of long-term debt
Foreign exchange loss on long-term debt and financial
instruments
Loss before income taxes
Provision for (recovery of) income tax
Net loss from continuing operations for the year
Net loss from discontinued operations for the year
Net loss including non-controlling interest for the year
Net earnings attributable to non-controlling interest
Net loss attributable to Shareholders for the year
20
Including
Discontinued
Operations
Exclusion of Discontinued Operations
As reported
Total
Container-
board
Boxboard
Europe
Specialty
Products
Intersegment
sales
Total
2014
(226)
(207)
(6)
(11)
(1)
(64)
1
—
62
—
—
—
—
62
18
44
(44)
—
—
—
(32)
(32)
—
(2)
—
(12)
—
—
14
—
—
—
—
14
—
14
(14)
—
—
—
(148)
(128)
(3)
(9)
(43)
2
—
—
33
—
(1)
—
—
34
9
25
(25)
—
—
—
14
14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,561
2,889
174
334
—
23
(2)
6
137
101
6
44
30
(44)
16
(60)
(83)
(143)
4
(147)
3,953
3,242
183
356
44
97
(3)
6
28
101
7
44
30
(154)
(11)
(143)
—
(143)
4
(147)
20
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis (in millions of Canadian dollars)
Results
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and
amortization), net of intercompany transactions
Depreciation and amortization
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Gain on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Foreign exchange gain on long-term debt and financial
instruments
Share of results of associates and joint ventures
Profit (loss) before income taxes
Provision for (recovery of) income tax
Net earnings (loss) from continuing operations for the year
Net earnings (loss) from discontinued operations for the year
Net earnings including non-controlling interest for the year
Net earnings attributable to non-controlling interest
Net earnings attributable to Shareholders for the year
(in millions of Canadian dollars)
Net cash flow
Cash flow from (used for):
Operating activities
Investing activities
Financing activities
Change in cash and cash equivalents during the year from discontinued
operations
Net change in cash and cash equivalents during the year
(in millions of Canadian dollars)
Net cash flow
Cash flow from (used for):
Operating activities
Investing activities
Financing activities
Change in cash and cash equivalents during the year from discontinued
operations
Net change in cash and cash equivalents during the year
As reported in
2013
Exclusion of Discontinued Operations
As reported
Total
Container-
board
Boxboard
Europe
Specialty
Products
Intersegment
sales
Total
2013
3,849
3,136
182
365
3
33
(5)
(5)
140
103
12
(2)
3
24
12
12
2
14
3
11
(219)
(209)
(7)
(12)
—
—
1
—
8
1
(1)
—
—
8
2
6
(6)
—
—
—
(51)
(54)
(1)
(3)
—
(11)
—
—
18
—
—
—
—
18
—
18
(18)
—
—
—
(226)
(194)
(7)
(15)
—
(20)
—
—
10
—
(3)
—
—
13
5
8
(8)
—
—
—
17
17
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,370
2,696
167
335
3
2
(4)
(5)
176
104
8
(2)
3
63
19
44
(30)
14
3
11
2014
Including
Discontinued
Operations
Exclusion of Discontinued Operations
As reported
Total
Container-
board
Boxboard
Europe
Specialty
Products
Total
250
(138)
(105)
—
7
(9)
—
—
9
—
(3)
—
—
3
—
(7)
(35)
—
42
—
231
(173)
(105)
54
7
2013
As reported in
2013
Exclusion of Discontinued Operations
As reported
Total
Container-
board
Boxboard
Europe
Specialty
Products
Total
232
(181)
(49)
—
2
10
2
—
(12)
—
7
—
—
(7)
—
(13)
6
—
7
—
236
(173)
(49)
(12)
2
21
21
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis Sales increased by 6%, or $191 million, to reach $3,561 million in 2014, compared to $3,370 million in 2013. The 7% average depreciation
of the Canadian dollar against both the U.S. dollar and the Euro largely explains this increase. We experienced higher selling prices and
shipments for our containerboard activities, while our tissue paper activities volume and average selling prices were lower than last year after
excluding the currency exchange rate impact.
The following graphics shows the breakdown of sales, before intercompany eliminations, and operating income before depreciation and
amortization by business segment:
SALES BREAKDOWN1
OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION BREAKDOWN2
1 Excluding inter-segment sales and Corporate activities.
2 Excluding specific items and Corporate activities. Please refer to ''Supplemental Information on Non-IFRS Measures'' for a complete reconciliation.
For the year, the Corporation posted a net loss of $147 million, or $1.57 per share, compared to net earnings of $11 million, or $0.11 per share,
in 2013. Excluding specific items, which are discussed in detail on pages 30 to 33, we posted net earnings of $20 million during the year, or
$0.21 per share, compared to net earnings of $29 million or $0.31 per share in 2013. The Corporation recorded an operating income of $137
million during the year, compared to $176 million in 2013. Excluding specific items, operating income stood at $166 million during the year,
compared to $175 million in 2013 (see the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures).
The decrease of $1.68 in our net earnings per share in 2014 compared to 2013, including specific items, can be explained by the following
factors:
(in Canadian dollars)
Change in specific items (see reconciliation on page 34)
Change in net earnings (loss) from continuing operations including non-controlling interest after normalized provision for income taxes
Withholding tax provision - North American capital structure optimization
Change in share of results of associates and joint ventures - net of income taxes and change in non-controlling interest
Change in net earnings (loss) from discontinued operations - net of income taxes
Decrease in net earnings per share
$
$
$
$
$
$
(1.58)
(0.11)
(0.15)
0.05
0.11
(1.68)
22
22
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis FORWARD-LOOKING STATEMENTS AND SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
The following is the annual financial report and management's discussion and analysis (“MD&A”) of the operating results and financial position of
Cascades Inc.(“Cascades” or “the Corporation”), and should be read in conjunction with the Corporation's consolidated financial statements and
accompanying notes for the years ended December 31, 2014 and 2013. Information contained herein includes any significant developments as
at March 12, 2015, the date on which the MD&A was approved by the Corporation's Board of Directors. For additional information, readers are
referred to the Corporation's Annual Information Form (“AIF”), which is published separately. Additional information relating to the Corporation is
also available on SEDAR at www.sedar.com.
This MD&A is intended to provide readers with the information that Management believes is required to gain an understanding of Cascades' current
results and to assess the Corporation's future prospects. Accordingly, certain statements herein, including statements regarding future results and
performance, are forward-looking statements within the meaning of securities legislation, based on current expectations. The accuracy of such
statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected,
including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation's products, the prices and availability
of raw material, changes in the relative values of certain currencies, fluctuations in selling prices and adverse changes in general market and
industry conditions. Cascades disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required under applicable securities regulations. This MD&A also includes price indices, as well
as variance and sensitivity analysis that are intended to provide the reader with a better understanding of the trends related to our business
activities. These items are based on the best estimates available to the Corporation.
The financial information contained herein, including tabular amounts, is expressed in Canadian dollars unless otherwise specified, and is prepared
in accordance with International Financial Reporting Standards (IFRS). Unless otherwise indicated or if required in the context, the terms “we”,
“our” and “us” refer to Cascades Inc. and all of its subsidiaries, joint ventures and associates. The financial information included in this analysis
also contains certain data that are not measures of performance under IFRS (“non-IFRS measures”). For example, the Corporation uses net debt,
working capital and working capital as a percentage of sales, return on capital employed, consolidated return on assets, operating income, operating
income before depreciation and amortization, or operating income before depreciation and amortization excluding specific items (OIBD or OIBD
excluding specific items) as these are the measures used by Management to assess the operating and financial performance of the Corporation's
operating segments. Moreover, we believe that OIBD is a measure often used by investors to assess a corporation's operating performance and
its ability to meet debt service requirements. OIBD has limitations as an analytical tool, and it should not be considered in isolation or as a substitute
for an analysis of our results as reported under IFRS. These limitations include the following:
•
•
•
•
•
•
OIBD excludes certain income tax payments that may represent a reduction in cash available to us
OIBD does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments
OIBD does not reflect changes in, or cash requirements for, our working capital needs
OIBD does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt
Although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future, and OIBD does not reflect any cash requirements for such replacements
The specific items excluded from OIBD, operating income, financing expense, net earnings (loss) and cash flow from operating activities
from continuing operations mainly include charges for (reversals of) impairment of assets, charges for facility or machine closures, accelerated
depreciation of assets due to restructuring measures, loss on refinancing of long-term debt, discontinued operations, premiums paid on long-
term debt refinancing, gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and
joint ventures, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or
losses on interest rate swaps, foreign exchange gains or losses on long-term debt, specific items on discontinued operations and other
significant items of an unusual or non-recurring nature. Although we consider these items to be non-recurring and less relevant to evaluating
our performance, some of them will continue to take place and will reduce the cash available to us.
Due to these limitations, OIBD should not be used as a substitute for net earnings (loss) or cash flow from operating activities from continuing
operations as determined in accordance with IFRS, nor is it necessarily indicative of whether or not cash flow will be sufficient to fund our cash
requirements. In addition, our definitions of OIBD may differ from those of other corporations. Any such modification or reformulation may be
significant. A reconciliation of OIBD to net earnings (loss) from continuing operations and to net cash flow from operating activities from continuing
operations, which we believe to be the closest IFRS performance and liquidity measure to OIBD, is outlined in the “Supplemental Information on
Non-IFRS Measures” section.
23
23
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis BUSINESS DRIVERS
Cascades' results are impacted by the fluctuations of the Canadian dollar against the U.S. dollar and Euro, as well as by energy prices and
the cost of raw material.
SALES +
COSTS -
- Selling prices
- Demand for packaging products and tissue papers
- Trend towards sustainable products, mainly made of
recycled fibres
- Foreign exchange rates
- Population growth
- Industrial production
- Product mix, substitution and innovation
- Freight
- Energy prices, mainly electricity and natural gas
- Fibre prices and availability (recycled papers, virgin pulp
and woodchips) and production recipes
- Foreign exchange rates
- Labour
- Chemical product prices
- Capacity utilization rates and production downtime
EXCHANGE RATES
Cascades’ results are impacted by fluctuations of the Canadian
dollar against the U.S. dollar and Euro. Please refer to the "Sensitivity
Table" section for more details on these impacts.
For the year 2014, the average value of the Canadian dollar against
the U.S. dollar was 7% lower than the average in 2013. Each $0.01
change in the U.S. dollar against its Canadian counterpart has an
impact of approximately $4 million on our annual OIBD. The sale of
the fine papers and North American boxboard activities, the closure
of the kraft paper mill and parent roll purchases from Greenpac
contributed to lowering Cascades' sensitivity to the U.S. dollar.
Against the Euro, the Canadian currency also depreciated by 7%
during the year compared to 2013. Each 0.01 change of the Euro
against the Canadian dollar has an impact of approximately $1
million on our annual OIBD.
ENERGY COSTS
With regard to energy costs, the average price of natural gas
increased by 21% in 2014 compared to the previous year, as higher
prices in the first quarter due to harsh weather conditions more than
offset lower prices during the rest of the year.
In the case of crude oil, the average price remained stable in 2014
compared to 2013, despite a significant decrease in average crude
oil prices in Q4 2014, caused by oversupply on the global market.
The variation of energy costs directly impacts our results as
illustrated in the "Sensitivity Table" section. It can also indirectly
impact our results through its influence on other costs such as
chemical product prices, freight and other costs that are sensitive to
energy prices.
24
24
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis SELLING PRICES AND RAW MATERIAL COSTS IN NORTH AMERICA
Selling prices and raw material costs trends are illustrated by the indices below, which have been adjusted following the sale of certain
assets and to more accurately represent the activities of our two core sectors.
The manufacturing index is a multiple calculated by dividing the average manufacturing selling price1 by the average raw material cost2. For
instance, for the fourth quarter of 2014, the average manufacturing selling price1 resulted in a 3.2x multiple of the average raw material
cost2.
To establish the converting index, we first calculate the spread between the average converting selling price3 and the average manufacturing
selling price1. This spread is then divided by the average raw material cost2. For instance, for the fourth quarter of 2014, the spread between
the average converting selling price3 and the average manufacturing selling price1 resulted in a 5.2x multiple of the average raw material
cost2.
We then establish a weighted index to reflect the partial integration of our activities. For instance, for the fourth quarter of 2014, as our global
integration rate was approximately 57%, the weighted index is composed of 57% of the converting index and 43% of the manufacturing
index.
In 2014, the manufacturing index decreased by 3%, compared to 2013 due to lower average manufacturing selling prices and higher raw
material costs. Compared to 2012, this index increased slightly in 2013 as higher average manufacturing selling prices more than offset
higher raw material costs.
Compared to 2013, the converting index and the weighted index decreased in 2014, both by 5% due to lower average converting selling
prices and integration rate. Compared to 2012, the two indices were also 7% lower in 2013 as higher raw material costs and lower integration
rate more than offset higher converting selling prices. It is worth noting that these indices only highlight the spread between selling prices
and raw material costs. They do not reflect other factors which impact profitability, such as exchange rates, production costs or depreciation.
1 The average manufacturing selling price is equal to the average, weighted according to shipments, of our average selling prices in U.S. dollars for containerboard rolls and of our average selling prices
in U.S. dollars for tissue paper jumbo rolls. This index only considers North American manufacturing prices for the Containerboard Group and the Tissue Papers Group. This index should only be used
as a trend indicator, as it may differ from our actual selling prices and our product mix.
2 The average raw material cost is equal to the average, weighted according to consumed volume, of the average costs in U.S. dollars paid in by our containerboard and tissue papers activities for
recycled fibre and virgin pulp. Some of these costs are estimated according to the historical relationship between our costs and selling prices published in PPI Pulp & Paper Week magazine. The cost
of woodchips and logs is not considered. This index should only be used as a trend indicator, as it may differ from our actual manufacturing purchasing costs and our purchase mix.
3 The average converting selling price is equal to the average, weighted according to shipments, of our average selling prices in U.S. dollars for corrugated boxes and of our average selling prices in
U.S. dollars for converted tissue paper products. This index only considers North American converting prices for the Containerboard Group and the Tissue Papers Group. This index should only be
used as a trend indicator, as it may differ from our actual selling prices and our product mix.
25
25
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis SENSITIVITY TABLE1
The following table provides a quantitative estimate of the impact on Cascades’ annual OIBD of potential changes in the prices of our main
products, the costs of certain raw material and energy, as well as the CAN$/US$ exchange rate, assuming, for each price change, that all
other variables remain constant. This is based on Cascades’ 2014 manufacturing and converting external shipments and consumption
quantities. However, it is important to note that this table does not consider the risk management from hedging instruments used by the
Corporation. In fact, Cascades’ hedging policies and portfolios (see the “Risk Factors” section) should also be considered in order to fully
analyze the Corporation’s sensitivity to the highlighted factors.
With regards to the CAN$/US$ exchange rate, we do not consider Cascades’ indirect sensitivity. This sensitivity refers to the fact that some
of Cascades’ selling prices and raw material costs in Canada are based on reference prices and costs in U.S. dollars converted into Canadian
dollars. In other words, the exchange rate fluctuation can have a direct influence on sales and purchases in Canada from Canadian facilities.
However, because this fluctuation is difficult to measure precisely, we do not include it in the following table. It also excludes the impact of the
exchange rate on the Corporation's Canadian units working capital items and cash positions denominated in other currency than CAN$. The
foreign exchange rates also has an impact on the translation in CAN$ of the results of our non-Canadian units.
SHIPMENTS/CONSUMPTION
('000 SHORT TONS, '000
MMBTU FOR NATURAL GAS)
INCREASE
OIBD IMPACT
(IN MILLIONS OF CAN$)
SELLING PRICE (MANUFACTURING AND CONVERTING)2
North America
Containerboard
Specialty Products (Industrial Packaging only)
Tissue Papers
Europe
Boxboard
RAW MATERIAL2
Recycled Papers
North America
Brown grades (OCC and others)
Groundwood grades (ONP and others)
White grades (SOP and others)
Europe
Brown grades (OCC and others)
Groundwood grades (ONP and others)
White grades (SOP and others)
Virgin pulp
North America
Europe
Natural gas
North America
Europe
Exchange rate3
Sales less purchases in US$ from Canadian operations
U.S. subsidiaries translation
European subsidiaries translation
1,100
160
570
1,830
1,090
2,920
1,020
50
560
1,630
740
180
100
1,020
2,650
110
80
190
6,800
4,700
11,500
US$25/s.t.
US$25/s.t.
US$25/s.t.
€25/s.t.
US$15/s.t.
US$15/s.t.
US$15/s.t.
€15/s.t.
€15/s.t.
€15/s.t.
US$30/s.t.
€30/s.t.
US1.00/mmBtu
€1.00/mmBtu
CAN$/US$
0.01 change
CAN$/US$
0.01 change
CAN$/€
0.01 change
30
4
16
40
90
(17)
(1)
(9)
(27)
(16)
(4)
(2)
(22)
(49)
(4)
(4)
(8)
(7)
(7)
(14)
3
1
1
5
1 Sensitivity calculated according to 2014 volumes or consumption, excluding discontinued operations, with an exchange rate of CAN$/US$ 1.10 and CAN$/€ 1.46, excluding hedging programs and
the impact of related expenses such as discounts, commissions on sales and profit-sharing.
2 Based on 2014 external manufacturing and converting shipments, as well as 2014 fibre and pulp consumption. Including purchases from our subsidiary Cascades Recovery. All figures are
excluding discontinued operations.
3 As an example, from CAN$/US$ 1.10 to CAN$/US$ 1.11 and from CAN$/€ 1.46 to CAN$/€ 1.47.
26
26
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis KEY PERFORMANCE INDICATORS
In order to achieve our long-term objectives while also monitoring our action plan, we use several key performance indicators, including the
following:
OPERATIONAL
Total shipments (in '000 s.t.)1
Packaging Products
Containerboard
Discontinued operations net of intercompany
transactions
Boxboard Europe
Discontinued operations net of intercompany
transactions
Specialty Products2
Discontinued operations net of intercompany
transactions
Tissue Papers
Total
Integration rate3
Containerboard only
Tissue Papers
Manufacturing capacity utilization rate4
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Consolidated total
2012
TOTAL
1,192
(221)
1,104
(52)
385
(207)
2,201
564
2,765
Q1
Q2
Q3
Q4
TOTAL
Q1
Q2
Q3
Q4
TOTAL
2013
2014
296
(54)
299
(13)
94
(53)
569
143
712
324
(55)
301
(14)
94
(52)
598
149
747
334
(53)
260
(11)
93
(48)
575
153
728
314
1,268
(43)
277
(14)
90
(50)
574
138
712
(205)
1,137
(52)
371
(203)
2,316
583
2,899
309
(55)
303
(13)
94
(53)
585
130
715
337
(51)
293
(10)
93
(52)
610
140
750
337
(50)
261
(4)
65
(24)
585
153
738
325
1,308
(48)
263
—
39
(204)
1,120
(27)
291
(2)
(131)
577
144
721
2,357
567
2,924
64%
69%
62%
69%
56%
70%
54%
71%
50%
72%
55%
70%
55%
71%
50%
70%
54%
69%
49%
69%
52%
70%
88%
93%
96%
92%
88%
99%
98%
95%
91%
102%
98%
97%
90%
87%
100%
91%
88%
93%
93%
91%
89%
95%
97%
93%
85%
101%
90%
93%
93%
98%
95%
96%
94%
89%
100%
93%
90%
91%
89%
90%
91%
95%
93%
93%
Energy cons.5 - GJ/ton
11.41
12.30
10.69
10.40
11.54
11.22
11.92
11.07
10.36
10.69
11.03
Work accidents6 - OSHA frequency rate
FINANCIAL
Return on assets7
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Consolidated return on assets
Return on capital employed8
3.80
3.10
3.30
3.10
3.20
3.20
3.30
3.50
3.50
2.90
3.30
7%
6%
9%
19%
8.1%
2.8%
8%
6%
9%
18%
8.0%
2.8%
9%
6%
10%
18%
8.0%
2.9%
10%
6%
10%
18%
8.5%
3.2%
11%
7%
12%
18%
9.3%
4.0%
11%
7%
12%
18%
9.3%
4.0%
12%
9%
12%
17%
9.5%
4.1%
13%
10%
12%
15%
9.6%
4.2%
13%
11%
14%
13%
9.9%
4.4%
13%
10%
13%
12%
9.4%
4.1%
13%
10%
13%
12%
9.4%
4.1%
455
488
485
543
455
455
14.4% 14.0% 13.5% 13.1% 12.9% 12.9% 12.9% 12.7% 12.6% 12.3% 12.3%
Working capital9
In millions of $, at end of period
% of sales10
1 Shipments do not take into account the elimination of business sector inter-company shipments.
2 Industrial Packaging shipments only, for all current and comparative periods.
3 Defined as: Percentage of manufacturing shipments transferred to our converting operations. Containerboard excludes manufacturing shipments from our North American boxboard operations presented as
discontinued operations.
4 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products Group manufacturing activities.
5 Average energy consumption for manufacturing mills only, excluding RdM. Not adjusted for discontinued operations.
6 Starting in Q1 2013, the rate includes Papersource and Bird Packaging. Excluding RdM for all periods and Djupafors starting in Q2 2014. Not adjusted for discontinued operations.
7 Return on assets is a non-IFRS measure defined as the last twelve months' (“LTM”) OIBD excluding specific items/LTM quarterly average of total assets. It includes or excludes significant business
acquisitions and disposals, respectively, of the last twelve months, on a pro forma basis. Not adjusted for discontinued operations.
8 Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM operating income, including our share of core joint ventures, excluding specific items, divided by the
LTM quarterly average of capital employed. Capital employed is defined as the total assets less trade and other payables. It includes or excludes significant business acquisitions and disposals, respectively,
of the last twelve months, on a pro forma basis. Not adjusted for assets of disposal group classified as held for sale.
9 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables. Not adjusted for assets of disposal group classified as held for sale.
10 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months, on a pro forma basis. Not adjusted for assets
of disposal group classified as held for sale.
379
460
469
526
379
27
27
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis HISTORICAL FINANCIAL INFORMATION
(in millions of Canadian dollars, unless otherwise noted)
Sales
Packaging Products
Containerboard
Discontinued operations net of intercompany
transactions
Boxboard Europe
Discontinued operations net of intercompany
transactions
Specialty Products
Discontinued operations net of intercompany
transactions
Inter-segment sales
Tissue Papers
Inter-segment sales and Corporate activities
Total
Operating income (loss)
Packaging Products
Containerboard
Discontinued operations
Boxboard Europe
Discontinued operations
Specialty Products
Discontinued operations
Tissue Papers
Corporate activities
Total
OIBD excluding specific items1
Packaging Products
Containerboard
Discontinued operations
Boxboard Europe
Discontinued operations
Specialty Products
Discontinued operations
Tissue Papers
Corporate activities
Total
Net earnings (loss)
Excluding specific items1
Net earnings (loss) per share (in dollars)
Basic and diluted
Basic, excluding specific items1
Net earnings (loss) from continuing operations per
basic and diluted common share (in dollars)
Cash flow from operations including discontinued
operations
Cash flow from discontinued operations
Cash flow from continuing operations1
2012
TOTAL
1,189
(242)
791
(53)
791
(224)
(56)
2,196
979
(34)
3,141
(12)
(1)
1
2
23
(4)
9
92
(29)
72
98
(8)
42
1
49
(12)
170
138
(23)
285
(22)
5
Q1
Q2
Q3
Q4
TOTAL
Q1
Q2
Q3
Q4
TOTAL
2013
2014
298
(58)
212
(14)
189
(57)
(12)
558
241
(10)
789
12
3
2
—
5
—
22
18
(17)
23
26
1
11
—
11
(2)
47
29
(9)
67
(8)
(4)
335
(58)
215
(12)
196
(57)
(12)
607
264
(12)
859
22
4
1
2
9
(3)
35
23
(17)
41
34
2
10
2
16
(5)
59
33
(10)
82
2
8
353
(56)
194
(11)
197
(55)
(13)
609
279
(10)
878
33
1
—
3
(12)
18
43
29
(13)
59
42
(1)
9
2
15
(3)
64
39
(9)
94
11
7
328
1,314
(47)
216
(14)
192
(57)
(13)
605
249
(10)
844
29
—
(10)
13
4
(5)
31
36
(14)
53
47
(1)
21
2
16
(7)
78
32
(11)
99
6
18
(219)
837
(51)
774
(226)
(50)
2,379
1,033
(42)
3,370
96
8
(7)
18
6
10
131
106
(61)
176
149
1
51
6
58
(17)
248
133
(39)
342
11
29
330
(59)
246
(14)
203
(63)
(13)
630
245
(12)
863
23
(1)
14
1
6
(2)
41
9
(14)
36
33
(2)
23
1
12
(4)
63
20
(8)
75
(1)
1
363
(58)
232
(12)
207
(61)
(13)
658
257
(5)
910
(6)
35
(1)
12
(37)
33
36
11
(10)
37
44
(1)
19
1
13
(3)
73
23
(6)
90
(83)
7
366
(56)
199
(6)
167
(22)
(10)
638
282
(11)
909
35
(1)
4
—
10
(2)
46
20
(15)
51
49
(3)
14
—
16
(4)
72
32
(11)
93
(16)
4
348
1,407
(53)
196
—
139
(2)
(13)
615
270
(6)
879
(6)
29
(2)
1
(6)
4
20
8
(15)
13
47
(3)
14
—
10
—
68
21
(7)
82
(47)
8
(226)
873
(32)
716
(148)
(49)
2,541
1,054
(34)
3,561
46
62
15
14
(27)
33
143
48
(54)
137
173
(9)
70
2
51
(11)
276
96
(32)
340
(147)
20
$ (0.23) $ (0.09) $
0.05 $ (0.04) $
$
0.03 $
0.09 $
0.12 $
0.07 $
0.05 $
0.19 $
0.11 $ (0.01) $ (0.88) $ (0.17) $ (0.51) $ (1.57)
0.21
0.31 $
0.08 $
0.01 $
0.08 $
0.04 $
$ (0.19) $ (0.05) $
0.06 $
0.28 $
0.15 $
0.44 $ (0.01) $ (0.24) $ (0.20) $ (0.23) $ (0.68)
161
(6)
155
46
2
48
41
1
42
78
5
83
61
(3)
58
226
5
231
60
(3)
57
26
10
34
92
(10)
82
73
(2)
71
251
(7)
244
Net debt2
US$/CAN$
EURO€/CAN$
Natural Gas Henry Hub - US$/mmBtu
Sources: Bloomberg and Cascades.
1 See “Forward-looking statements and supplemental information on non-IFRS measures” .
2 Defined as total debt less cash and cash equivalents.
1,535
1.00 $
0.78 $
2.79 $
1,581
0.99 $
0.75 $
3.34 $
$
$
$
1,675
0.98 $
0.75 $
4.09 $
1,601
0.96 $
0.73 $
3.58 $
1,612
0.95 $
0.70 $
3.60 $
1,612
0.97 $
0.73 $
3.65 $
1,708
0.91 $
0.66 $
4.94 $
1,645
0.92 $
0.67 $
4.67 $
1,640
0.92 $
0.69 $
4.06 $
1,613
0.88 $
0.70 $
4.00 $
1,613
0.91
0.68
4.42
28
28
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis BUSINESS HIGHLIGHTS
In 2014 and 2013, the Corporation completed transactions in order to optimize its asset base and streamline its cost structure. The following
transactions and announcements, which occurred in both years, should be taken into consideration when reviewing the overall or segmented
analysis of the Corporation's results.
BUSINESS CLOSURES, RESTRUCTURING AND DISPOSALS
BOXBOARD EUROPE
•
On April 9, 2014, following a consultation process with the unions, the Corporation announced closure of its subsidiary Cascades Djupafors,
located in Ronneby, Sweden, which definitively ceased its operations on June 15. Results and cash flows have been reclassified as
discontinued operations for the current and comparative periods.
SPECIALTY PRODUCTS GROUP
•
Effective June 30, 2014, we sold our fine papers activities for an amount of $39 million, before transaction fees of $1 million, of which
$37 million was received on the date of the transaction and a selling price balance of $2 million has been received in the third quarter.
A negative preliminary working capital adjustment of $2 million was recorded and paid by the Corporation during the third quarter. Results
and cash flows have been reclassified as discontinued operations for the current and comparative periods.
•
On July 9, 2014, we announced the permanent closure of our kraft paper manufacturing activities located in East Angus, Québec. On
September 26, we definitively ceased operations of the mill. Results and cash flows have been reclassified as discontinued operations
for the current and comparative periods.
CONTAINERBOARD GROUP
•
On December 11, 2014, the Corporation announced that it had reached an agreement for the sale of its North American boxboard
manufacturing and converting assets for $45 million. The transaction was closed on February 4, 2015. Results and cash flows have been
reclassified as discontinued operations for the current and comparative periods. Balance sheet items were reclassified as held for sale.
•
On November 27, 2013, the Corporation announced the creation of a new joint venture with Maritime Paper Products Limited in the
Atlantic provinces related to our plants in St. John's, Newfoundland, and Moncton, New Brunswick. The transaction was closed on January
31, 2014.
SIGNIFICANT FACTS AND DEVELOPMENTS
i. On August 18, 2014, we announced the strategic optimization and expansion of our tissue papers activities in the southeastern United
States, with the installation of a new tissue converting facility in Wagram, North Carolina. This investment will reorganize and expand our
converting activities in that area, which is a targeted region of growth for the Corporation. The total estimated cost of the project is US$55 million
of which US$18 million has already been spent in 2014. New equipment is being installed progressively, and some production started in
December 2014 and will continue throughout the first half of 2015.
ii. In 2014, we refinanced our 7.75% unsecured senior notes of US$500 million and $200 million, due in 2017 and in 2016, respectively. The
Corporation issued 5.50% unsecured senior notes of US$550 million, due in 2022, and 5.50% unsecured senior notes of $250 million, due
in 2021. We allocated the proceeds of these new notes to repurchase the US$500 million notes due in 2017 and the $200 million notes due
in 2016. The remaining amounts (US$50 million and $50 million) were used to pay a premium totaling $31 million and refinancing costs of
$13 million and to reduce our credit facility utilization. The refinancing of these notes will reduce our future interest expense by approximately
US$8 million and $6 million annually.
iii. During the third quarter of 2013, we announced plans to increase tissue paper production capacity at our plant in St. Helens, Oregon. The
project, consists in converting and starting up a second paper machine. The retrofitting of an existing machine will allow us to bring an additional
capacity of 55,000 tons to this market at a lower capital cost and on a faster timeline than if we were to build a new machine. The project
started its ramp-up period on October 25, 2014. Total cost of this project after the ramp-up period stood at $45 million as at December 31,
2014 ($11 million spent in 2013).
iv. During the fourth quarter of 2014, we announced the acquisition and installation, for $13 million, of two new printing presses for the
Containerboard activities in our Vaudreuil and Drummondville, Québec plants which specialize in manufacturing corrugated packaging
products. This investment will allow us to respond more quickly to our customers' needs, offer packaging products of greater quality and
increase our productivity.
v. In 2013 and 2014, the results of our European boxboard operations were, from time to time, positively impacted by energy savings certificates
("white certificates"). These certificates of energy efficiency are awarded by the Italian authorities for the promotion of, and reward, energy
savings achieved through approved projects. The recognition of these credits in our operating results is done once the approval of a project
is received from the authorities. We might continue to receive such certificates in 2015.
29
29
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis SPECIFIC ITEMS INCLUDED IN OPERATING INCOME AND NET EARNINGS (LOSS)
The Corporation incurred some specific items in 2014 and 2013 that adversely or positively affected its operating results. We believe it is
useful for readers to be aware of these items, as they provide a measure of performance with which to compare the Corporation's results
between periods, notwithstanding these specific items.
The reconciliation of the specific items included in operating income (loss) by business segment is as follows:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Loss on acquisitions, disposals and others
Impairment charges
Restructuring costs (gain)
Unrealized loss on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Loss (gain) on acquisitions, disposals and others
Impairment charges (reversal)
Restructuring costs
Unrealized loss (gain) on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
Including Discontinued Operations
Exclusion of
Discontinued Operations
2014
Total
Container-
board
Boxboard
Europe
Specialty
Products
Tissue
Papers
Corporate
activities
Container-
board
Boxboard
Europe
Specialty
Products
Consoli-
dated
46
62
108
1
64
—
—
65
173
111
15
35
50
—
11
9
—
20
70
35
(27)
23
(4)
43
16
(4)
—
55
51
28
48
47
95
—
—
1
—
1
96
49
(54)
16
(38)
—
—
—
6
6
(32)
(48)
62
(6)
56
(1)
(64)
—
—
(65)
(9)
(3)
14
—
14
—
(4)
(8)
—
(12)
2
2
33
(3)
30
(43)
(2)
4
—
(41)
(11)
(8)
Including Discontinued Operations
Exclusion of
Discontinued Operations
Container-
board
Boxboard
Europe
Specialty
Products
Tissue
Papers
Corporate
activities
Container-
board
Boxboard
Europe
Specialty
Products
96
60
156
(2)
1
2
(8)
(7)
149
89
(7)
37
30
—
17
4
—
21
51
14
6
26
32
—
26
—
—
26
58
32
106
44
150
—
(17)
—
—
(17)
133
89
(61)
15
(46)
5
—
—
2
7
(39)
(54)
8
(7)
1
—
—
—
—
—
1
8
18
(1)
17
—
(10)
(1)
—
(11)
6
7
10
(7)
3
—
(20)
—
—
(20)
(17)
(10)
137
174
311
—
21
2
6
29
340
166
2013
Total
Consoli-
dated
176
167
343
3
(3)
5
(6)
(1)
342
175
30
30
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS
In 2014 and 2013, the Corporation recorded the following gains and losses:
(in millions of Canadian dollars)
Employment contracts
Gain on disposal of property, plant and equipment
Class action settlement
Gain on a joint-venture contribution
2014
2013
—
—
5
(5)
—
5
(2)
—
—
3
2014
In the fourth quarter, the Corporation settled a class action lawsuit that was filed against it and other North American manufacturers of
containerboard. Under the terms of the settlement agreement the Corporation has agreed to pay US$4.8 million into a settlement fund in
return for the release of all claims of the alleged class action without any admission of wrong doing on the part of the Corporation.
On January 31, the Corporation concluded the creation of a new joint venture, for converting corrugated board activities in the Atlantic provinces
with Maritime Paper Products Limited (MPPL).This transaction resulted in a gain of $5 million (see Note 8, ''Investments in associates and
joint ventures'' for more details).
2013
In the second quarter, the Containerboard Group sold a piece of land located at its New York City, U.S., containerboard plant site and recorded
a gain of $2 million on the disposal.
As part of the transition process in connection with the appointment of a new President and CEO, the Corporation entered into employment
contracts with the new President and CEO, and the Presidents of the Containerboard, Specialty Products and Tissue Papers business
segments. The fair value of the post-employment benefit obligation related to these employment contracts was evaluated at $5 million as at
March 31, and an equivalent charge has been recorded.
IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS
In 2014 and 2013, the Corporation recorded the following impairment charges (reversal) and restructuring costs:
(in millions of Canadian dollars)
Containerboard Group
Boxboard Europe Group
Specialty Products Group
Tissue Papers Group
2014
2013
Impairment charges
Restructuring costs
Impairment charges
(reversal)
Restructuring costs
—
7
14
—
21
—
1
—
1
2
1
7
6
(17)
(3)
2
3
—
—
5
2014
In the fourth quarter, the Boxboard Europe Group reviewed the recoverable amount of its Iberica, Spain, recycled boxboard manufacturing
mill and recorded impairment charges on property, plant and equipment totaling $7 million. The slow recovery of the European economic
environment since the 2009 financial crisis negatively impacted the profitability of this mill. The Boxboard Europe Group also recorded
severances of $1 million in relation to previous years' plant closures.
In the second quarter, the Specialty Products Group recorded impairment charges of $2 million on property, plant and equipment, and the
amount of $3 million on spare parts due to sustained challenging business conditions for a plant manufacturing consumer goods made from
recovered plastics in its consumer products sub-segment. On September 30, the plant was sold to Laurent Lemaire, a director and major
shareholder of the Corporation, at a value determined to be fair by the independent members of the Board. The independent directors of the
Board reviewed all options for this business and determined that the sale to Mr. Lemaire was in the best interests of the Corporation and the
employees of the consumer plastics business. The Group also recorded impairment charges of $3 million on other assets.
In the fourth quarter, the Specialty Products Group reviewed the recoverable amount of its flexible film activities CGU and recorded an
impairment charge of $6 million on property, plant and equipment. Sustained low shipments in this sector do not generate enough profitability
to support the carrying value of property plant and equipment.
The Tissue Papers Group recorded severances of $1 million as part of its consumer products activities restructuring.
31
31
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis 2013
The Containerboard Group recorded an impairment charge of $1 million due to the re-evaluation of a note receivable (in Other assets) from
a 2011 business disposal.
The Containerboard Group also recorded a $1 million provision relating to an onerous lease contract and an additional severances provision
totaling $1 million in relation to the consolidation of its Ontario converting activities, announced in 2012.
The Boxboard Europe Group reviewed the recoverable amount of its Magenta and Marzabotto (both in Italy) and Iberica, Spain recycled
boxboard manufacturing mills, and recorded impairment charges on property, plant and equipment totaling $7 million. The slow recovery of
the European economic environment since the 2009 financial crisis negatively impacted the profitability of these mills and led to the consolidation
of our recycled boxboard activities in Europe.
The Boxboard Europe Group recorded severances totaling $3 million in relation to consolidation of its recycled boxboard activities in Italy and
Spain.
The Specialty Products Group also reviewed the recoverable amount of its honeycomb activities and recorded an impairment charge of the
amount of $2 million on a client list and $4 million on goodwill. Low shipments in this sector do not generate enough profitability to support
the carrying value of these intangible assets with a finite life.
The Tissue Papers Group recorded a $17 million reversal of impairment on its Memphis, Tennessee, manufacturing mill. The Corporation
had initially recorded an impairment charge of $22 million as at the transition date to IFRS on January 1, 2010, due to operational challenges.
Since then, the Corporation implemented a Group Best Practices program to maximize efficiency at all of its plants. These actions contributed
to solving operating difficulties at the Memphis mill.
DERIVATIVE FINANCIAL INSTRUMENTS
In 2014, the Corporation recorded an unrealized loss of $6 million, compared to an unrealized gain of $6 million in 2013, on certain financial
instruments not designated for hedge accounting.
LOSS ON REFINANCING OF LONG-TERM DEBT
Following the refinancing of the Corporation's unsecured senior notes on June 19, 2014, we recorded premiums of $30 million to repurchase
and redeem our existing notes before their maturities. We also wrote-off financing costs and discounts related to the redeemed notes, in the
amount of $14 million.
INTEREST RATE SWAPS
In 2013, the Corporation recorded an unrealized gain of $1 million on financial instruments on interest rate swaps.
FOREIGN EXCHANGE GAIN (LOSS) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2014, the Corporation recorded a loss of $30 million, compared to a gain of $2 million in 2013, on its US$-denominated debt and related
financial instruments. This is composed of a loss of $27 million in 2014, compared to a loss of $7 million in 2013, on our US$-denominated
long-term debt net of our net investment hedge in the U.S. and forward exchange contracts designated as hedging instruments. It also includes
a loss of $3 million in 2014, compared to a gain of $9 million in 2013, on foreign exchange forward contracts not designated for hedge
accounting.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
In 2014, our share of results of associates and joint ventures includes a $1 million impairment charge on assets from our joint venture Maritime
Paper. As well, it includes a $1 million unrealized gain on financial instruments not designated for hedge accounting, compared to a $5 million
unrealized gain in 2013 from our associate Greenpac. Additionally, it includes $2 million in acquisition costs from our associate Boralex following
its acquisition of Enel Green Power France in the fourth quarter of 2014. Finally, the 2013 share of results includes a $1 million impairment
on its investment in a joint venture in Europe.
32
32
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis DISCONTINUED OPERATIONS
In 2014 and 2013, the Corporation recorded the following amounts in discontinued operations:
(in millions of Canadian dollars)
Containerboard Group - Boxboard North America
Boxboard Europe Group
Specialty Products Group - Fine Papers
Specialty Products Group - Kraft Papers
Corporate activities
Total (excluding related income taxes)
Income taxes
Total
Loss on
disposals
and others
1
—
43
—
—
44
(13)
31
Impairment
charges
Restructuring
costs (gain)
64
4
—
2
—
70
(19)
51
—
8
—
(4)
—
4
1
5
2014
Total
65
12
43
(2)
—
118
(31)
87
Loss on
disposals and
others
—
—
—
—
—
—
—
—
Impairment
charges
Restructuring
costs (gain)
—
10
—
20
—
30
(5)
25
—
1
—
—
(2)
(1)
—
(1)
2013
Total
—
11
—
20
(2)
29
(5)
24
2014
On December 11, the Containerboard Group announced that it had reached an agreement for the sale of its boxboard activities in North
America to Graphic Packaging Holding Company, for $45 million. The sale was completed on February 4, 2015. Following the announcement,
impairment charges of $2 million on intangible assets, $23 million on property, plant and equipment, and $6 million on spare parts were
recorded.
In the second quarter, the Containerboard Group had reviewed the recoverable value of one boxboard mill and recorded impairment charges
of $12 million on property, plant and equipment, and $5 million on spare parts. In the same quarter, we also recorded impairment charges of
$16 million on notes receivable related to the 2011 disposal of our U.S. boxboard activities.
In the third quarter, the Containerboard Group sold a building in connection with a closed plant and recorded a gain of $1 million. Also during
the third quarter, in connection with our boxboard plants sold in 2011, we recorded a loss of $2 million related to an onerous lease contract
following the bankruptcy of Fusion Paperboard.
On June 15, following the announcement made in 2013, we definitively ceased the operation of our virgin boxboard mill located in Sweden.
Following the closure, we recorded an impairment charge of $4 million on spare parts and severances of $7 million. An environmental provision
of $1 million was recorded as well.
On June 30, we sold our fine papers activities of the Specialty Products Group, for a cash consideration of $39 million before transaction fees
of $1 million, of which $37 million was received on closing and $2 million during the third quarter. Also during the third quarter, the Corporation
recorded and paid a preliminary working capital adjustment of $2 million. The transaction is still subject to a working capital adjustment as of
December 31. As a result, a loss on disposal of $43 million was recorded during the year.
On September 26, we ceased the operation of our kraft papers manufacturing activities of the Specialty Product Group located in East Angus,
Québec. The closure was announced on July 9, and an impairment charge of $2 million on spare parts and restructuring costs of $4 million
were recorded in the second quarter. At the same time, a curtailment gain of $9 million was recorded on the pension plan. In the fourth quarter,
we recorded $1 million of closure costs for the mill.
2013
During the year, the Djupafors mill recorded severances totaling $1 million in relation to consolidation of its recycled boxboard activities in
Djupafors, Sweden. The mill also recorded an impairment charge of $10 million on property, plant and equipment at its Djupafors mill. This
impairment charge was recorded due to sustained difficult market conditions, which led to insufficient profitability.
In the third quarter, the Specialty Products Group reviewed the recoverable amount of its East Angus, Québec, kraft paper mill and recorded
impairment charges of $16 million on property, plant and equipment, and $4 million on spare parts.
On March 11, 2011, the Corporation announced that it had entered into an agreement for the sale of Dopaco Inc. and Dopaco Canada Inc.
(collectively Dopaco), its converting business for the quick-service restaurant industry, to Reynolds Group Holdings Limited. In 2013, we
reversed in Corporate Activities a $2 million provision for which we had retained liability following this transaction that did not materialize.
33
33
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
Net earnings (loss), a performance measure defined by IFRS, is reconciled below with operating income, operating income excluding specific
items and operating income before depreciation and amortization excluding specific items:
(in millions of Canadian dollars)
Net earnings (loss) attributable to Shareholders for the year
Net earnings attributable to non-controlling interest
Net loss from discontinued operations for the year
Provision for income taxes
Share of results of associates and joint ventures
Foreign exchange loss (gain) on long-term debt and financial instruments
Financing expense, interest expense on employee future benefits and loss on refinancing of long term debt
Operating income
Specific items:
Loss on acquisitions, disposals and others
Impairment charges (reversal)
Restructuring costs
Unrealized loss (gain) on financial instruments
Operating income - excluding specific items
Depreciation and amortization
Operating income before depreciation and amortization - excluding specific items
2014
(147)
4
83
16
—
30
151
137
—
21
2
6
29
166
174
340
2013
11
3
30
19
3
(2)
112
176
3
(3)
5
(6)
(1)
175
167
342
The following table reconciles net earnings (loss) and net earnings (loss) per share with net earnings excluding specific items and net earnings
per share excluding specific items:
NET EARNINGS (LOSS)
NET EARNINGS (LOSS) PER SHARE 1
(in millions of Canadian dollars, except amount per share)
As per IFRS
Specific items:
Loss on acquisitions, disposals and others
Impairment charges (reversal)
Restructuring costs
Unrealized loss (gain) on financial instruments
Loss on refinancing of long-term debt
Unrealized gain on interest rates swaps
Foreign exchange loss (gain) on long-term debt and financial
instruments
Share of results of associates and joint ventures
Included in discontinued operations, net of tax
Tax effect on specific items, other tax adjustments and attributable
to non-controlling interest 1
Excluding specific items
2014
(147)
—
21
2
6
44
—
30
2
87
(25)
167
20
2013
11 $
3
(3) $
5 $
(6) $
— $
(1)
(2) $
(4) $
24 $
2
18 $
29 $
2014
(1.57) $
— $
0.13 $
0.02 $
0.05 $
0.35
— $
0.28 $
0.01 $
0.94 $
—
1.78 $
0.21 $
2013
0.11
0.03
(0.02)
0.03
(0.04)
—
(0.01)
(0.02)
(0.03)
0.26
—
0.20
0.31
1 Specific amounts per share are calculated on an after-tax basis and net of the portion attributable to non-controlling interest.
34
34
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The following table reconciles cash flow from operating activities from continuing operations with cash flow from operating activities from
continuing operations (adjusted) and cash flow from operating activities from continuing operations excluding specific items:
(in millions of Canadian dollars)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Cash flow from operating activities from continuing operations (adjusted)
Specific items, net of current income taxes if applicable:
Restructuring costs
Premium paid on long-term debt refinancing
Excluding specific items
2014
231
13
244
2
31
277
2013
236
(5)
231
2
—
233
The following table reconciles cash flow from operating activities from continuing operations with operating income and operating income
before depreciation and amortization:
(in millions of Canadian dollars)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Depreciation and amortization
Net income taxes received
Net financing expense paid
Premium paid on long-term debt refinancing
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain (loss) on financial instruments
Dividend received, employee future benefits and others
Operating income
Depreciation and amortization
Operating income before depreciation and amortization
2014
231
13
(174)
(14)
73
31
—
(21)
(6)
4
137
174
311
2013
236
(5)
(167)
(5)
100
—
(3)
—
6
14
176
167
343
The following table reconciles the total debt and the net debt with the net debt on operating income before depreciation and amortization
(OIBD) excluding specific items ratio:
(in millions of Canadian dollars)
Long-term debt
Current portion of other long-term debt
Bank loans and advances
Total debt
Cash and cash equivalents
Net debt
OIBD excluding specific items1, 2
Net debt / OIBD excluding specific items ratio
2014
1,556
40
46
1,642
29
1,613
340
4.7
2013
1,540
39
56
1,635
23
1,612
352
4.6
1 For 2013, the OIBD excluding specific items includes the effect of discontinued operations of $10 million as reported in 2013.
2 Net debt does not include the impact of the sale of our North American boxboard assets which results are reclassified as discontinued operations. The transaction was closed in February 2015 and
the Corporation received proceeds of $46 million (including $1 million in working capital adjustment). However, as per the sale agreement, we will have to incur in 2015 cash disbursement of
approximately $4 million to compensate for pension plan deficit as of February 4, 2015.
35
35
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2014 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2013
Our 2014 and 2013 results have been adjusted to account for the reclassification of discontinued operations.
SALES
Sales increased by 6%, or $191 million, to reach $3,561 million in 2014, compared to $3,370 million in 2013. The 7% depreciation of the
Canadian dollar against both the U.S. dollar and the Euro largely explains this increase. We experienced higher selling prices and increased
shipments for our containerboard activities, while our tissue paper activities volumes and average selling prices were lower than last year
when excluding the currency exchange rate impact.
Sales by geographic segment are as follows, along with the localization of our plants and property, plant and equipment around the world:
Sales from (in %):
Sales to (in %):
Production and sorting facilities' units (in %)1
Property, plant and equipment by geographic
segment (in %)
1 Excluding sales offices, distribution and transportation hubs and corporate offices.
Including the main associates and joint ventures.
OPERATING INCOME FROM CONTINUING OPERATIONS
The Corporation generated an operating income of $137 million in 2014, compared to $176 million in 2013, a decrease of $39 million. The
reduction in operating income mainly comes from the specific items recorded, as described on pages 30 to 33. The depreciation of the
Canadian dollar and the increase in the average selling price and in volumes in our Containerboard Group positively contributed to operating
income. However, these elements were more than offset by lower volume and average selling prices (excluding the currency impact) in our
Tissue Papers Group, and by the negative impacts of higher raw material costs, mostly due to an increase in external purchases of paper
rolls, mainly from Greenpac, in our Containerboard Group, a different mix of products sold and higher usage of virgin pulp in our Tissue Papers
Group. Higher depreciation expense also impacted the operating income, mainly due to the lower Canadian dollar.
Excluding specific items, the operating income stood at $166 million in 2014, compared to $175 million in 2013 (see the “Supplemental
Information on Non-IFRS Measures” and ''Specific Items Included in Operating Income and Net Earnings (Loss)'' sections for reconciliation
of these amounts).
36
36
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The main variances in sales and operating income in 2014, compared to 2013, are shown below:
Sales ($M)
Operating income ($M)
1 Raw material: The impacts of these estimated costs are based on production costs per unit shipped externally, which are affected by yield, product mix changes and purchase and transfer prices. In
addition to market pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting sector, and other raw material such as plastics and woodchips.
2 F/X CAN$: The estimated impact of the exchange rate is based on the Corporation's Canadian export sales less purchases, denominated in US$, that are impacted by exchange rate fluctuations
and by our non-Canadian subsidiaries OIBD translation into CAN$. It also includes the impact of the exchange rate variation on the Corporation's Canadian units in other currency than the CAN$
working capital items and cash positions, as well as our hedging transactions. It excludes indirect sensitivity (please refer to page 26 for more details).
3 Other costs: Other costs include the impact of variable and fixed costs based on production costs per unit shipped externally, which are affected by downtimes, efficiencies and product mix changes.
4 OIBD: Excluding specific items.
The operating income variance analysis by segment is shown in each business segment review (refer to pages 38 to 49).
37
37
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - CONTAINERBOARD
Our Industry
U.S. containerboard industry production and capacity utilization rate 1
As the U.S. economy picked up, the U.S. containerboard industry remained well
balanced in 2014 despite the addition of production capacity. Total production and the
capacity utilization rate increased slightly in 2014.
U.S. containerboard inventories at box plants and mills 2
The average inventory level was 4% higher in 2014 than in 2013 and weeks of supply
averaged 4.1, a figure slightly above the 2013 and 2012 levels. This increase can be
explained by the addition of production capacity.
Canadian corrugated box industry shipments 3
Canadian shipments increased by 3% in 2014 compared to 2013, as both Canada
and the U.S. experienced improved market conditions.
Reference prices - recovered paper (brown grade) 1
The average reference price of Corrugated containers no.11 decreased again in 2014,
due to weak Asian demand and improved recovery rates in China. Closures of North
American mills also resulted in abundant domestic supply to meet demand.
Reference prices - containerboard 1
The linerboard reference price remained stable throughout 2014 while, according to
RISI, the reference price for corrugating medium posted a $10 per ton decline starting
in July 2014 as a result of new production capacity in the Northeast.
1 Source: RISI
2 Source: Fiber Box Association
3 Source: Canadian Corrugated and Containerboard Association
38
38
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis Our Performance
Our 2014 and 2013 results have been adjusted to account for the reclassification of discontinued operations.
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price
The main variances in sales and operating income for the Containerboard Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 37.
The Corporation incurred some specific items in 2014 and 2013 that adversely or positively affected its operating results. Please refer to pages 30 to 33 for more details and
reconciliation.
39
39
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis 2013
2014
Change in %
Shipments1 ('000 s.t.)
1,063
1,104
Average Selling Price
(CAN$/unit)
1,031
1,001
(US$/unit)
1,070
969
Sales ($M)
1,095
1,181
Operating income ($M)
(as reported)
104
108
(excluding specific items)
108
97
OIBD ($M)
(as reported)
% of sales
157
14%
164
14%
(excluding specific items)
164
150
% of sales
14%
14%
4%
4%
-3%
8%
4%
11%
4%
9%
1 Shipments do not take into account the elimination of business sector inter-
company shipments.
2 Since our participation in Greenpac is accounted for using the equity method, all
transactions are accounted for as external.
3 Pro forma figures based on normalized average daily production and current-month
margin, as well as unplanned downtime taken.
Shipments increased by 4%, or 41,000 s.t., to 1,104,000 s.t. in 2014, compared
to 1,063,000 s.t. in 2013. The containerboard mills’ external shipments went up
by 19,000 s.t.(same-plants basis), or 5%, as they sold fewer tons internally
following the start-up of the Greenpac mill2, which is now fulfilling a portion of
our internal converting linerboard needs. Also, despite a fire at our Niagara Falls
mill in the third quarter of 2014 and the 14-day shutdown in the first quarter at
our Trenton mill, which together subtracted 15,000 s.t.3, the mills still managed
to increase their operating rate by 1%. Our corrugated products plants
registered a volume increase of 3.3% (same plants basis). This mirrors the
Canadian and US industries that respectively recorded an increase of 4% and
1.2%.
The total average selling price went up by $39, or 4%, to $1,070 per s.t. in
2014 compared to $1,031 in 2013. While our containerboard mills average
selling price showed a slight increase of US$2 per s.t., our corrugated products
plants’ average selling price rose by CAN$50 per s.t. Simultaneously, the
weakening of the Canadian dollar positively impacted the average selling price
of both our primary and converting sectors.
As a result, the Containerboard Group’s sales increased by $86 million, or 8%,
to $1,181 million in 2014, compared to $1,095 million in 2013. Notwithstanding
the sale of our two converting plants in the Maritimes in the first quarter of 2014
which subtracted $17 million in sales, all factors impacting the Group’s revenue
line were positive. Furthermore, the increased volume highlighted above
generated $41 million of additional sales while the 7% decline in the Canadian
dollar value and a higher average selling price combined to add another $68
million of revenue.
Excluding specific items, operating income stood at $108 million in 2014,
compared to $97 million in 2013, an increase of $11 million mainly driven by
better selling prices and stronger volume. These two factors jointly produced
$54 million of additional income. On the other hand, raw material costs increased
by $30 million. Our containerboard mills benefited from lower recycled fibre
prices, albeit not sufficient to counterbalance the negative impact of the
weakening Canadian dollar and the 29% increase in the paper bought
externally, coming largely from Greenpac2. Lastly, freight costs were up $6
million, due largely to the mills that shipped to less favourable locations with an
increase in external shipments.
The 2014 operating income was also impacted by the harsh weather conditions
prevailing in Québec, Ontario and the U.S. Northeast that led to higher energy
costs of approximately $4 million during the first quarter of 2014, and by an
amount of $4 million loss resulting from a 14-day shutdown following problems
with the water treatment equipment at our Trenton containerboard mill. Fire
incidents also resulted in additional maintenance and repair expenses, and
unplanned downtime, for a shortfall of around 7,000 tons at our containerboard
mill in Niagara Falls, U.S., and our converting plant in Etobicoke, Ontario3.
The 2013 operating income was also impacted by a loss of $2 million following
flooding incidents resulting in additional maintenance and repair expenses, and
unplanned downtime for a shortfall of around 6,000 tons3 at our containerboard
mill in Niagara Falls, U.S. and by a $5 million gain resulting from a decrease in
our post-retirement benefits liability following a change to our benefits program.
In the first quarter of 2014, a gain of $5 million was recorded following the
contribution of our assets in the Atlantic provinces to a newly formed joint venture
with Maritime Paper Products Limited, in which we have a 40% ownership
share. Also, in the last quarter of 2014, a provision of $5 million was recorded
following a class action lawsuit settlement. Please refer to page 30 to 33 for
more details on specific items recorded in 2014 and 2013.
Finally, we are also recording our share of results of our associate Greenpac2
mill (59.7%). In 2014, including the incidents of a fire protection system
malfunction and a fire in the raw material yard located outside, Greenpac had
a negative contribution of $4 million to share of results of associates and joint
ventures (excluding specific items).
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40
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis PACKAGING PRODUCTS - BOXBOARD EUROPE
Our Industry
European industry's order inflow of coated boxboard from Europe 1
In Europe, order inflows of white-lined chipboard (WLC) increased by 3% in 2014 compared to 2013. For folding boxboard, order inflows were 1% lower than in 2013. The fourth
quarter of 2014 represented the best quarter over the last six years for WLC order inflows at 754,000 tonnes.
Coated recycled boxboard industry's order inflow from Europe
(White-lined chipboard (WLC) - 5-week weekly moving average)
Virgin coated duplex boxboard industry's order inflow from Europe
(Folding boxboard (FBB) - 5-week weekly moving average)
Reference prices - boxboard in Europe 4
Recycled WLC reference prices remained stable all year long but decreased slightly
at the end of the year in Italy and Spain. The economic recovery in 2014 resulted in
price increases averaging 20 Euros per tonne for virgin coated duplex boxboard at
the beginning of the year. Since then, prices have decreased slightly.
Reference prices - recovered papers in Europe 4
In 2014, our recovered paper reference index in Europe decreased by 5%, mainly
due to lower prices for brown grades, a decrease in Asian demand, higher stocks
and planned production outages at paper mills.
1 Source: CEPI Cartonboard
2 The Cascades recycled white-lined chipboard selling prices index represents an approximation of Cascades’ recycled grade selling prices in Europe. It is weighted by country. For each country, we
use an average of PPI Europe prices for white-lined chipboard.
3 The Cascades virgin coated duplex boxboard selling prices index represents an approximation of Cascades’ virgin grade selling prices in Europe. It is weighted by country. For each country, we use
an average of PPI Europe prices for coated duplex boxboard.
4 Source: RISI
5 The Recovered paper index represents an approximation of Cascades’ recovered paper purchase prices in Europe. It is weighted by country. For each country, we use an average of PPI Europe
prices for recovered papers. This index should only be used as a trend indicator and may differ from our actual purchasing costs and our purchase mix.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis Our Performance
Our 2014 and 2013 results have been adjusted to account for the reclassification of discontinued operations.
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price
The main variances in sales and operating income for the Boxboard Europe Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 37.
The Corporation incurred some specific items in 2014 and 2013 that adversely or positively affected its operating results. Please refer to pages 30 to 33 for more details and
reconciliation.
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42
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis 2013
2014
Change in %
Shipments1 ('000 s.t.)
1,085
1,093
Average Selling Price2
(CAN$/unit)
723
528
(Euro€/unit)
770
525
Sales ($M)
786
841
Operating income ($M)
(as reported)
11
29
(excluding specific items)
37
21
OIBD ($M)
(as reported)
% of sales
47
6%
64
8%
(excluding specific items)
72
57
% of sales
7%
9%
1%
7%
-1%
7%
164%
76%
36%
26%
1 Shipments do not take into account the elimination of business sector inter-company
shipments.
2 Average selling price is a weighted average of virgin and recycled boxboard shipments.
Shipments increased slightly by 8,000 s.t., or 1%, to 1,093,000 s.t. in
2014 compared to 1,085,000 s.t. in 2013. The shipments in our virgin
boxboard activities increased, due in part to a pulp tank incident that
occurred in the first quarter of 2013 and reduced the production output.
On the other hand, the shipments decreased in our recycled boxboard
activities due to the challenging environment in Europe and to a machine
rebuilt at our Santa Giustina mill in 2014.
The total average selling price went up by $47, or 7%, to $770 per s.t.
in 2014 compared to $723 in 2013, resulting mainly from a lower
Canadian dollar against the Euro. The average selling price in Euros
decreased by €3, to €525 in 2014, compared to €528 in 2013. The
recycled activities average selling price is down by €8 while the virgin
boxboard activities' average selling price is up by €6 in 2014 compared
to 2013.
As a result, the Boxboard Europe Group’s sales increased by an amount
of $55 million, or 7%, to $841 million in 2014 compared to $786 million
in 2013. The 7% depreciation of the Canadian dollar against the Euro
is the key factor explaining that increase and accounted for $59 million
of it. As well, higher volume coming from our virgin boxboard activities
generated $6 million in additional sales but were more than offset by a
lower average selling price for $12 million. However, this decrease was
mitigated by a favourable mix of product sold and geographic mix of
sales.
Excluding specific items, operating income stood at $37 million in 2014
compared to $21 million in 2013, an increase of $16 million. We
benefited from a $4 million positive energy impact mainly related to $9
million in white certificates in 2014 compared to $6 million in 2013 (see
the ''Business Highlights'' section for more details). Lower fixed costs
and general and administrative expenses explain the majority of a $8
million cost reduction compared to the same period of last year. Lower
raw material costs positively contributed as well for $7 million. Finally,
the 7% depreciation of the Canadian dollar against the Euro accounted
for $6 million of the increase. As explained above, the lower average
selling price and mix partly offset the increase for $12 million.
In 2014, the Group recorded impairment charges on property, plant and
equipment totaling $7 million on its Iberica recycled boxboard mill in
Spain and severances totaling 1 M$ related to previous years plant
closures. In 2013, impairment charges of $7 million were recorded on
property, plant and equipment at our Marzabotto and Magenta (both in
Italy) and Iberica, Spain recycled boxboard mills. Also, severances
totaling $3 million were recorded in relation to the consolidation of our
recycled boxboard activities. Please refer to page 30 to 33 for more
details on specific items recorded in 2014 and 2013.
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43
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis PACKAGING PRODUCTS - SPECIALTY PRODUCTS
Our Industry
Reference prices - market pulp 1
In 2014, prices followed a downward trend as a result of lower demand from China,
market downtimes and a stronger U.S. dollar. However, average prices of all grades
were 1% to 9% higher in 2014 than in 2013.
Reference prices - uncoated recycled boxboard 1
For a second consecutive year, the reference price for uncoated recycled boxboard
increased in 2014. The 4% increase over 2013 can be attributed to market strength
and growing order backlogs.
U.S. recycled fibre exports to China 1
With the sale of our fine papers activities and our exit from the kraft paper market, our recycling and recovery activities represent a more important component of the results of
the Specialty Products Group. The relationship between recovered paper supply and demand, particularly from Asia, plays an important role in pricing dynamics. For a second
consecutive year, U.S. exports to China decreased in 2014. White grades and old corrugated containers grades decreased by 44% and 4% respectively over 2013 while mixed
groundwood papers and old newspapers exports increased by 7% and 2% in 2014 compared to the previous year. The percentage of total U.S exports to China was approximately
3% lower in 2014 than in 2013.
Total U.S. exports of recycled papers to China - all grades
Major grades exported by the U.S.
Chinese imports of recycled fibre 1
Total Chinese imports decreased by 8% between 2012 and 2014, as a result of higher recovery rates and lower demand in China. In 2014, imports of old corrugated containers
were 6% lower than in 2013.
Total Chinese imports of recycled papers - all grades
Major grades imported by China
1 Source: RISI
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44
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis Our Performance
Our 2014 and 2013 results have been adjusted to account for the reclassification of discontinued operations.
Sales
OIBD and OIBD margin
(excluding specific items)
Industrial packaging
manufacturing shipments and
manufacturing capacity
utilization rate
The main variances in sales and operating income for the Specialty Products Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 37.
The Corporation incurred some specific items in 2014 and 2013 that adversely or positively affected its operating results. Please refer to pages 30 to 33 for more details and
reconciliation.
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45
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis 2013
2014
Change in %
Shipments1 ('000 s.t.)
160
168
Sales ($M)
548
568
Operating income ($M)
(as reported)
6
16
(excluding specific items)
20
22
OIBD ($M)
(as reported)
% of sales
35
6%
26
5%
(excluding specific items)
40
41
% of sales
7%
7%
-5%
4%
-63%
-9%
-26%
-2%
1 Industrial packaging shipments only. Shipments do not take into account the elimination of business
sector inter-company shipments.
Shipments decreased by 8,000 s.t., or 5%, to 160,000 s.t. in 2014,
compared to 168,000 s.t. in 2013, due to lower volume in the Industrial
Packaging sector.
The Specialty Products Group's sales increased by $20 million, or 4%,
to $568 million in 2014, compared to $548 million in 2013. The increase
was mainly driven by the 7% depreciation of the Canadian dollar against
the U.S. dollar and accounted for $25 million of the increase.
Excluding specific items, operating income stood at $20 million in
2014, compared to $22 million in 2013, a decrease of $2 million. Lower
spread mainly resulting from higher resin costs in our Consumer
Packaging sector, higher maintenance costs as well increased freight
costs due to a different mix of customers and fuel surcharge accounted
for $4 million, $3 million and $1 million respectively. These were partly
offset by a favourable exchange rate, which accounted for $7 million of
the operating income.
In the fourth quarter of 2014, the Group recorded impairment charges
of $6 million on property, plant and equipment due to sustained
challenging business conditions for a plant manufacturing flexible
packaging in our Consumer Packaging sector. Impairment charges of
$3 million on other assets were also recorded in the second quarter of
2014.
As well in the second quarter of 2014, the Group recorded impairment
charges of $2 million on property, plant and equipment and $3 million
on spare parts for a plant that was sold to Laurent Lemaire on September
30, 2014, a director and major shareholder of the Corporation, at a value
determined to be fair by the independent members of the Board. The
independent directors of the Board reviewed all options for this business
and determined that the sale to Mr. Lemaire was in the best interests
of the Corporation and the employees of the consumer plastics
business. Please refer to page 30 to 33 for more details on specific
items recorded in 2014 and 2013.
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46
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis TISSUE PAPERS
Our Industry
U.S. tissue paper industry - production (parent rolls) and capacity
utilization rate 1
In 2014, parent roll shipments were 1% higher than during the previous year. While
the average capacity utilization rate for the year remained stable at 94%, it ended
the year at 90% as newly installed capacity ramped up production.
U.S. tissue paper industry - converted product shipments 1
Both the retail and away-from-home markets continued to grow in 2014, with
shipments increasing by 2%.
Reference prices - parent rolls 1
The reference price for recycled parent rolls declined by 11% in 2014, mainly due to
favourable recovered paper prices and additional capacity. The reference price for
virgin parent rolls decreased by 7% during the year, as additional production
capacity more than offset increasing virgin pulp prices.
Reference prices - recovered paper (white grade) 1
The reference price of Sorted office papers no.37 increased by 3% in 2014,
compared to 2013, after two consecutive years of decrease. Greater demand in the
U.S. and Mexico pushed prices higher.
U.S. producer price index - yearly changes in converted tissue
prices 2
In the U.S., prices for retail toilet tissue and paper towels decreased from 2.5% to
4.4% in 2014 compared to 2013, as intensive promotional activities took place.
1 Source: RISI
2 Source: U.S. Bureau of Labor Statistics
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis Our Performance
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price
The main variances in sales and operating income for the Tissue Papers Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 37.
The Corporation incurred some specific items in 2014 and 2013 that adversely or positively affected its operating results. Please refer to pages 30 to 33 for more details and
reconciliation.
48
48
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis 2013
2014
Change in %
Shipments1 ('000 s.t.)
567
583
Average Selling Price
(CAN$/unit)
1,772
1,720
(US$/unit)
1,860
1,683
Sales ($M)
1,033
1,054
Operating income ($M)
(as reported)
106
48
(excluding specific items)
49
89
OIBD ($M)
(as reported)
% of sales
150
15%
95
9%
(excluding specific items)
96
133
% of sales
13%
9%
-3%
5%
-2%
2%
-55%
-45%
-37%
-28%
1 Shipments do not take into account the elimination of business sector inter-company
shipments.
Shipments decreased by 16,000 s.t., or 3%, to 567,000 s.t. in 2014,
compared to 583,000 s.t. in 2013. Manufacturing external shipments
decreased slightly by 2,000 s.t., or 1%, to 161,000 s.t. in 2014,
compared to 163,000 s.t. in 2013. Converting shipments decreased by
14,000 s.t., or 3%, to 406,000 s.t. in 2014, compared to 420,000 s.t. in
2013. The decrease is mainly driven by slower demand in our U.S. retail
segment.
The total average selling price, went up by $88, or 5%, to $1,860 per
s.t. in 2014 compared to $1,772 per s.t. in 2013. The 7% depreciation
of the Canadian dollar against the U.S. dollar contributed increasing
the average selling price. These gains were partially offset by a price
erosion in our Retail Canada segment due to the product mix and a
competitive market landscape, combined with lower jumbo rolls selling
prices.
As a result, the Tissue Paper Group’s sales increased by $21 million,
or 2%, to $1,054 million in 2014, compared to $1,033 million in 2013.
The $54 million favourable impact of the 7% depreciation of the
Canadian dollar against the U.S. dollar more than offset the negative
$28 million impact on volume. The lower average selling price, as
explained above, had an $11 million negative impact on sales.
Excluding specific items, operating income stood at $49 million in
2014, compared to $89 million in 2013, for a decrease of $40 million,
or 45%. Lower shipments in our U.S. retail market mostly contributed
to a negative volume impact of $10 million. An erosion of spread driven
by a raw material increase, a higher virgin pulp usage and a lower
average selling price has also negatively impacted profitability by an
amount of $30 million. The increase in manufacturing expenses is
impacted by the current volume situation which has been offset by lower
sub-contracting costs as we completed the installation of a new
production line in order to increase our U.S. converting capacity. The
cold weather in the Northeast in the first quarter of 2014 explains an
amount of $4 million of the $7 million negative energy impact. A
favourable exchange rate increased operating income by $10 million.
In 2014, the Tissue Papers Group recorded a $1 million restructuring
cost related to a severance cost for lay-off communicated to employees
during the last quarter of the year, affecting our Toronto converting
facility. This layoff is part of a supply chain improvement initiative started
in 2014. This initiative will optimize our manufacturing capacity between
Canada and the U.S., in order that we can be closer to the market by
improving our distribution network.
In 2013, the Group recorded a $17 million reversal of impairment on its
Memphis, Tennessee manufacturing mill. The Corporation had initially
recorded an impairment charge of $22 million as at transition date to
IFRS on January 1, 2010, due to operational challenges. Since then,
the Corporation has implemented a Group Best Practices program to
maximize efficiency at all of its plants. These actions contributed to
solving operating difficulties at the Memphis mill.
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49
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis CORPORATE ACTIVITIES
The operating loss in 2014 includes an unrealized loss of $6 million on financial instruments compared to an unrealized loss of $2 million in
2013. In the first quarter of 2013, the Corporation recorded a $5 million charge due to the establishment of employment contracts in favour
of the new CEO and the Presidents of its Containerboard, Specialty Products and Tissue Papers business segments. Operating loss in 2014
was positively impacted compared to 2013, as we incurred lower costs in connection with our information system transformation and lower
corporate expenses. In 2014, the operating loss includes a $3 million loss representing direct costs incurred by the Corporation resulting from
fire incidents at its Niagara Falls mill and Etobicoke converting plant both in our Containerboard Group.
OTHER ITEMS ANALYSIS
DEPRECIATION AND AMORTIZATION
The depreciation and amortization expense increased by $7 million, to $174 million in 2014, compared to $167 million in 2013. The impairment
charges recorded in the last twelve months decreased the depreciation and amortization expense for 2014, but have been more than offset
by capital investments completed during the last twelve months. The depreciation of the Canadian dollar against the Euro and the U.S. dollar
also increased the depreciation expense from our European and U.S. operations, for $5 million.
FINANCING EXPENSE AND INTEREST ON EMPLOYEE FUTURE BENEFITS
The financing expense and interest on employee future benefits decreased by $5 million to $107 million in 2014 compared to $112 million in
2013. The depreciation of the Canadian dollar against the Euro and the U.S. dollar increased the interest expense by approximately $4 million,
but this factor was more than offset following the refinancing of senior notes at lower interest rates by approximately $7 million.
Interest expense on the employee future benefits obligation decreased by $2 million to $6 million in 2014 compared to $8 million in 2013, due
to good investment returns in 2013. Despite a significant decrease in discount rates, good investment returns in 2014 will allow interest
expense on employee future benefits to remain stable in 2015. This expense does not require any cash payment by the Corporation.
During the fourth quarter of 2014, Standard & Poor's, a rating service agency, upgraded the unsecured debt rating to ''B+'' of the Corporation
from ''B'' following the review of its recovery analysis methodology calculation. During the second quarter of 2013, Standard & Poor's
downgraded the long-term corporate credit rating of the Corporation to ''B+'' from ''BB-'' on slower de-leveraging, with a stable outlook. This
has caused an increase, of 37.5 basis points, in the interest rate on our revolving credit facility in the second half of 2013 and for future periods.
In 2013, the Corporation recorded an unrealized gain of $1 million on financial instruments on interest rate swaps.
In 2014, we refinanced our 7.75% unsecured senior notes of US$500 million and $200 million, due in 2017 and in 2016, respectively. The
Corporation issued 5.50% unsecured senior notes of US$550 million, due in 2022, and 5.50% unsecured senior notes of $250 million, due
in 2021. We allocated the proceeds of these new notes to repurchase the US$500 million notes due in 2017 and the $200 million notes due
in 2016. The remaining amounts (US$50 million and $50 million) were used to pay a premium totaling $31 million and refinancing costs of
$13 million and to reduce our credit facility utilization. The refinancing of these notes will reduce our future interest expense by approximately
US$8 million and $6 million annually.
Following the refinancing of the Corporation's unsecured senior notes on June 19, 2014, we recorded premiums of $30 million to repurchase
and redeem our existing notes before their maturities. We also wrote-off financing costs and discounts related to the redeemed notes, in the
amount of $14 million.
50
50
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis PROVISION FOR INCOME TAXES
In 2014, the Corporation recorded an income tax provision of $16 million, for an effective tax rate of 7%. The provision for (recovery of) income
taxes based on the effective income tax rate differs from the provision for (recovery of) income taxes based on the combined basic rate for
the following reasons:
(in millions of Canadian dollars)
Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment of provision for (recovery of) income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Reassessment
Permanent differences - others
Change in unrecognized temporary differences
Provision for income taxes
2014
(12)
1
3
22
2
28
16
2013
17
5
1
(2)
(2)
2
19
In 2014, we optimized our North American capital structure and incurred a one-time withholding tax of $14 million, included in the permanent
differences in the above table.
The income tax provision is mainly impacted by the weighted average of taxable income in each jurisdiction. The tax provisions for the foreign
exchange gain or loss on long-term debt and related financial instruments, and our share of the results of our Canadian associates and joint
ventures are calculated at the rate of capital gain.
As for our United States-based joint ventures and associates, which are mostly composed of the Greenpac mill, our share of results is taxed
based on the statutory tax rate. Moreover, as Greenpac is a limited liability company (LLC), partners agreed to account for it as a disregarded
entity. As such, income taxes at the United States statutory tax rate are fully integrated into each partner's consolidated income tax provision
based on its respective share in the LLC, and no income tax provision is included in Greenpac's net earnings.
The effective tax rate and current income taxes are affected by the results of certain subsidiaries and joint ventures located in countries,
notably the United States, France and Italy, where the income tax rate is higher than in Canada. The normal effective tax rate is expected to
be in the range of 26% to 39%. In fact, the weighted-average applicable tax rate was 26.5% in 2014.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
The share of results of associates and joint ventures is partly represented by our 34.23% interest in Boralex Inc. (“Boralex”), a Canadian public
corporation that is a major electricity producer whose core business is the development and operation of power stations that generate renewable
energy, with operations in the north-eastern United States, Canada and France. To finance its acquisition of Enel Green Power France, in
December 2014, Boralex proceeded, in January 2015, to the issuance of common shares which diluted our participation to 27.4% at that time.
We are also recording our share (59.7%) of the results of our associate, Greenpac mill. In 2014, Greenpac had a $3 million negative contribution
to our share of results of associates and joint ventures. No provision for income taxes is included in our Greenpac share of results, as it is a
disregarded entity for tax purposes (see the ''Provision for income taxes'' section just above for more details).
RESULTS OF DISCONTINUED OPERATIONS
Refer to the ''Financial Overview'' section on pages 20 to 21 for all details on results and cash flows from discontinued operations.
51
51
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Continuing operating activities generated $231 million of operating cash flow in 2014 compared to $236 million in 2013. Changes in non-cash
working capital components used $13 million in liquidity in 2014 compared to generation of $5 million in 2013. The first half of the year normally
requires cash for working capital purposes, due to seasonal variations. During the first quarter of the year, we always notice an increase in
pre-paid expenses and payment of year-end volume rebates. Moreover, inventory build-up normally takes place during the first half of the
year for the forthcoming summer. In the first quarter of 2014, our working capital increased due to higher inventory levels following softer
demand, particularly in our tissue papers business, and higher sales volume towards the end of March. Demand in our Tissue Papers Group
has improved since the first quarter, but inventory of jumbo rolls remains high. Also, in Europe, a reduction of $17 million (€12 million) in
factoring of accounts receivable contributed to increased working capital requirements during the year. However, actions taken since 2012
to improve our working capital of the last twelve months (LTM) as a percentage of sales continue to show positive results. As at December
31, 2014, the level of working capital as a percentage of LTM sales stands at 12.3%.
Cash flow from operating activities from continuing operations, excluding the change in non-cash working capital components, stood at the
amount of $244 million in 2014, compared to $231 million in 2013. In 2014, cash flows from operating activities from continuing operations
were reduced by refinancing costs paid, totaling $31 million. Interest paid in 2014 was lower than in 2013, following our June 2014 refinancing,
which postponed our interest payments on our senior notes from December to January. We benefited from a net income tax reimbursement
of $14 million and from lower pension and post-benefits payments, compared to 2013. This cash flow measurement is significant, since it
positions the Corporation to pursue its capital expenditures program and reduce its indebtedness.
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Investment activities required total cash resources of $173 million in 2014 and 2013. Capital expenditure payments accounted for $171 million
in 2014, compared to $126 million in 2013, net of proceeds of disposals in the amount of $7 million in 2014, compared to $12 million in 2013.
Other assets and investments in associates and joint ventures required $2 million in 2014, compared to $47 million in 2013.
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
Capital expenditure projects paid for in 2014 amounted to $178 million, compared to $138 million in 2013. New capital expenditure projects
in 2014 amounted to $179 million, compared to $147 million in 2013. The remaining amounts are related to the variation in purchases of
property, plant and equipment included in ''Trade and Other Payables'' and to capital-lease acquisitions and acquisitions included in ''Other
debts''.
New capital expenditure projects by sector were as follows in 2014 (in $M):
52
52
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The major capital projects initiated, in progress or completed in 2014 are as follows:
CONTAINERBOARD
•
$13 million for the acquisition and installation of two new printing presses at the Québec plants of Vaudreuil and Drummondville, which
specialize in manufacturing corrugated packaging products. This investment will allow us to respond more quickly to our customers'
needs, offer packaging products of greater quality and increase our productivity.
•
$10 million for which grants were awarded, at our Cabano mill, for the installation of a new water pulp process, which will increase our
return on wood-chips and reduce chemical usage and atmospheric emissions.
BOXBOARD EUROPE
•
$21 million in order to rebuild the wet-end section and for the installation of a belt calender at the Santa Giustina recycled boxboard mill,
in Italy, that will allow a reduction of energy consumption, increase productivity and improve quality.
TISSUE PAPERS
•
•
$34 million, as part of the recently announced project to convert and start a second paper machine at our Oregon mill.
$20 million for a new building and a new towel line that will allow us to increase our production capacity in Wagram, North Carolina.
Other capital projects initiated, in progress or completed across the Corporation have been paid for in 2014 but are not significant enough to
be described.
PROCEEDS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
In 2014, the main transactions composing the $7 million in proceeds on disposal of property, plant and equipment were as follows:
•
•
The Containerboard Group sold a building related to a plant that had previously been closed, for proceeds of $3 million.
The Boxboard Europe Group, specifically RdM, sold some equipment coming from a plant that had been closed in 2013 and received
proceeds of $2 million in 2014.
INVESTMENTS IN INTANGIBLE AND OTHER ASSETS, AND INVESTMENTS IN
ASSOCIATES AND JOINT VENTURES
In 2014, the Corporation also invested in other assets and made investments in associates and joint ventures in the amount of $2 million
compared to $47 million in 2013. The main investments of 2014 and 2013 were as follows:
2014
•
•
•
$5 million for the modernization of our financial information system to an ERP information technology system.
Greenpac repaid $2 million on its bridge loan from the Corporation.
$1 million from the reimbursement of notes receivable coming from business sold in 2011.
2013
•
US$30 million ($32 million) for our Greenpac project in our Containerboard Group segment.
•
$14 million for the modernization of our financial information system to an ERP information technology system.
53
53
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
DEBT REFINANCING
In 2014, we refinanced our 7.75% unsecured senior notes of US$500 million and $200 million, due in 2017 and in 2016, respectively. The
Corporation issued 5.50% unsecured senior notes of US$550 million, due in 2022, and 5.50% unsecured senior notes of $250 million, due
in 2021. We allocated the proceeds of these new notes to repurchase the US$500 million notes due in 2017 and the $200 million notes due
in 2016.
Issuance proceeds were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering and tender offer fees
Refinanced debt repurchase
Premium paid on refinanced debt
Decrease of credit facility
846
(13)
(740)
(31)
(62)
In 2013, the Corporation repurchased US$4 million of its 7.25% unsecured senior notes for an amount of US$4 million ($4 million) and the
amount of US$6 million of its 6.75% unsecured senior notes, for an amount of US$6 million ($6 million). No gain or loss resulted from these
transactions.
In 2013, the Corporation also paid US$4 million ($4 million) for the settlement of derivative financial instruments related to its 7.25% unsecured
senior notes and US$10 million ($10 million) for the settlement of derivative financial instruments related to its 6.75% unsecured senior notes.
The Corporation redeemed 77,400 of its common shares on the open market in 2014, pursuant to a normal-course issuer bid. The Corporation
also issued 376,025 common shares following the exercise of stock options, for an amount of $1 million received. Including the $15 million
in dividends paid out in 2014, financing activities from continuing operations, including debt repayment and the change in our revolving facility,
required $105 million in liquidity, compared to requirements of $49 million in the same period of 2013.
CONSOLIDATED FINANCIAL POSITION
AS AT DECEMBER 31, 2014, 2013 AND 2012
The Corporation's financial position and ratios are as follows:
(in millions of Canadian dollars, unless otherwise noted)
Cash and cash equivalents
Working capital1
% of sales2
Bank loans and advances
Current portion of other long-term debt
Long-term debt
Total debt
Net debt (total debt less cash and cash equivalents)
Equity attributable to Shareholders
Total equity
Total equity and net debt
Ratio of net debt/(total equity and net debt)
Shareholders' equity per share (in dollars)
2014
29
379
12.3%
46
40
1,556
1,642
1,613
893
1,003
2,616
2013
23
455
12.9%
56
39
1,540
1,635
1,612
1,081
1,194
2,806
2012
20
455
14.4%
80
60
1,415
1,555
1,535
978
1,094
2,629
61.7%
9.48
$
57.4%
11.52
$
58.4%
10.42
$
1 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables. It includes the working capital of our North American
assets that were reclassified as held for sale.
2 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months, on a pro forma basis. Including
the results of our discontinued operations on an LTM basis.
54
54
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis NET DEBT RECONCILIATION
The variances in the net debt (total debt less cash and cash equivalents) in 2014 are shown below (in M$), with the applicable financial ratios
included (2013 OIBD excluding specific items includes the results of the discontinued operations):
352
4.6
OIBD excluding specific items (last twelve months)
Net debt1/OIBD excluding specific items
340
4.7
1 Net debt does not include the impact of the sale of our North American boxboard assets, the results of which were reclassified as discontinued operations. The
transaction closed in February 2015 and the Corporation received proceeds of $46 million (including $1 million of working capital adjustment). However, as per
the sale agreement, we have to compensate for the pension plan deficit, which is estimated at $4 million and is expected to be paid in the first quarter of 2015.
Liquidity available via the Corporation's credit facilities, along with the expected cash flow generated by its operating activities, will provide
sufficient funds to meet its financial obligations and to fulfill its capital expenditure program. Capital expenditure requests for 2015 are initially
approved at $150 million. This amount is subject to change, depending on the Corporation’s operating results and on general economic
conditions. As at December 31, 2014, the Corporation had $410 million (net of letters of credit in the amount of $8 million) available through
its $750 million credit facility. In 2013, the Corporation issued $23 million in new letters of credit in connection with the Greenpac project, which
expired in December 2014.
EMPLOYEE FUTURE BENEFITS
The Corporation’s employee future benefits assets and liabilities amounted to $453 million and $621 million respectively as at December 31,
2014, including an amount of $109 million for post-retirement benefits other than pension plans. These pension plans include an amount of
$60 million, which does not require any funding by the Corporation until it is paid to the employees. This amount is not expected to increase,
as the Corporation is reviewing its benefits program to phase out some of them for the majority of future retirees.
With regard to pension plans, the Corporation’s risk is limited, since all defined benefit pension plans are closed to new employees and as
less than 10% of its active employees are subject to those pension plans, while the remaining employees are part of the Corporation’s defined-
contribution plans, such as group RRSPs or 401(k). Based on their balances as at December 31, 2014, 100% of the Corporation pension
plans have been evaluated on December 31, 2013 (45% in 2012). Where applicable, Cascades used the measurement relief allowed by law
in order to reduce the impact of its increased current contributions.
Considering the assumptions used and the asset ceiling limit, the deficit status for accounting purposes of its pension plans amounted to
$59 million as at December 31, 2014, compared to $44 million in 2013. The 2014 pension plan expense was $12 million less a curtailment
gain of $7 million, and the cash outflow was $15 million and we had a refund of $6 million from closed plans. Due to the good investment
returns in 2014, the change in the assumptions and the sale or closure of some divisions, the expense for these pension plans is expected
to decrease by $4 million in 2015. As for the cash flow requirements, these pension plans are expected to require a net contribution of
approximately $14 million in 2015. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans will remain stable
at around 100%.
55
55
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis COMMENTS ON THE FOURTH QUARTER OF 2014
Sales increased by $35 million, or 4%, to $879 million in the fourth quarter of 2014, compared to $844 million in the same period of 2013,
resulting from the 8% decrease of the Canadian dollar against the U.S. dollar and the increase in our shipments. These factors were partly
offset by lower average selling prices in our Boxboard Europe and Tissue Papers activities.
The Corporation generated an operating income of $13 million in the fourth quarter of 2014, compared to $53 million in the same period of
2013, a decrease of $40 million. The reduction in operating income mainly comes from the specific items recorded in the fourth quarter of
2014, as described on pages 30 to 33. Higher volumes and the 8% depreciation of the Canadian dollar against the U.S. dollar generated a
favourable impact. These factors were more than offset, however, by higher raw material costs especially in our containerboard sector, and
by lower average selling prices and lower energy credits ($4 million) in our Boxboard Europe segment. In 2013, the fourth-quarter results of
our Containerboard Group were positively impacted by a $5 million post-retirement benefits adjustments. On a segmented basis, our boxboard
Europe and tissue papers operations posted lower results, while our containerboard and specialty products activities were stable. Excluding
specific items, the operating income stood at $38 million in the fourth quarter of 2014, compared to $54 million in the same period of 2013.
In the fourth quarter of 2014, the following specific items before income taxes impacted our results:
•
•
•
•
•
•
•
•
a $5 million provision following a class-action lawsuit settlement in the Containerboard segment;
a $13 million impairment charge in our Boxboard Europe and Specialty Products groups;
a $2 million charge related to restructuring measures;
a $5 million unrealized loss on derivative financial instruments;
a $13 million foreign exchange loss on long-term debt and financial instruments;
a $2 million loss related to the share of results of associates, joint-ventures;
a $5 million reversal of the above mentioned items attributable to non-controlling interests;
a $36 million loss from impairment charges and restructuring costs of discontinued operations.
Net earnings excluding specific items amounted to $8 million, or $0.08 per share, in the fourth quarter of 2014, compared to $18 million, or
$0.19 per share, for the same period of 2013. Including specific items, the net loss stood at $47 million, or $0.51, per share, compared to net
earnings of $6 million, or $0.05 per share, for the same period of 2013.
The reconciliation of the specific items included in operating income (loss) by business segment is as follows:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items :
Loss on acquisitions, disposals and others
Impairment charges
Restructuring costs
Unrealized loss on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
Including Discontinued Operations
For the 3-month period ended December 31, 2014
Exclusion of
Discontinued Operations
Total
Container-
board
Boxboard
Europe
Specialty
Products
Tissue
Papers
Corporate
activities
Container-
board
Boxboard
Europe
Specialty
Products
Consoli-
dated
(6)
16
10
5
31
—
1
37
47
31
(2)
7
5
—
7
2
—
9
14
7
(6)
6
—
3
6
1
—
10
10
4
8
12
20
—
—
1
—
1
21
9
(15)
4
(11)
—
—
—
4
4
(7)
(11)
29
(1)
28
—
(31)
—
—
(31)
(3)
(2)
1
—
1
—
—
(1)
—
(1)
—
—
4
—
4
(3)
—
(1)
—
(4)
—
—
13
44
57
5
13
2
5
25
82
38
56
56
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis (in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items :
Impairment charges (reversals)
Restructuring costs
Unrealized gain on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
For the 3-month period ended December 31, 2013
Including Discontinued Operations
Exclusion of
Discontinued Operations
Container-
board
Boxboard
Europe
Specialty
Products
Tissue
Papers
Corporate
activities
Container-
board
Boxboard
Europe
Specialty
Products
29
16
45
1
2
(1)
2
47
31
(10)
10
—
17
4
—
21
21
11
4
6
10
6
—
—
6
16
10
36
13
49
(17)
—
—
(17)
32
19
(14)
3
(11)
—
—
—
—
(11)
(14)
—
(1)
(1)
—
—
—
—
(1)
—
13
—
13
(10)
(1)
—
(11)
2
2
(5)
(2)
(7)
—
—
—
—
(7)
(5)
Total
Consoli-
dated
53
45
98
(3)
5
(1)
1
99
54
The main variances in sales and operating income in the fourth quarter of 2014, compared to the same period of 2013, are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 37.
NEAR-TERM OUTLOOK
With certain important restructuring initiatives of our action plan implemented during 2014, we will focus on getting the most out of our renewed
operating platform during the next year. Demand for Packaging Products seems good as we start the year and most business drivers should
provide tailwinds in 2015. We are still expecting challenging conditions in 2015 in the tissue sector and we took additional downtime during
the first quarter of 2015 for equipment maintenance and upgrades. However, our new tissue sites in the U.S. will gradually add to our results
in 2015 and we expect Greenpac to contribute positively to EPS. Hence, following all the difficult decisions taken in 2014, we are confident
that our margins will be higher this year. Coupled with prudent management of our cash flows, including lower capital expenditures, our
leverage ratios should also improve despite the impact of a weaker Canadian dollar on our financial situation.
57
57
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis CAPITAL STOCK INFORMATION
As at December 31, 2014, issued and outstanding capital stock consisted of 94,186,474 common shares (93,887,849 as at
December 31, 2013), and 6,432,328 stock options were issued and outstanding (6,656,423 as at December 31, 2013). In 2014, 546,155
options were granted, 376,025 options were exercised and 394,225 options expired or were forfeited. As well, in 2014, 77,400 common shares
were redeemed by the Corporation. As at March 12, 2015, issued and outstanding capital stock consisted of 94,219,380 common shares and
6,327,120 stock options.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, operating-leases and obligations
for its pension and post-employment benefit plans. The following table summarizes these obligations as at December 31, 2014:
CONTRACTUAL OBLIGATIONS
Payment due by period (in millions of Canadian dollars)
Long-term debt and capital-leases, including capital and interest
Operating leases
Pension plans and other post-employment benefits1
Total contractual obligations
TOTAL
LESS THAN A
YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
OVER 5
YEARS
2,108
64
1,396
3,568
132
22
58
212
428
16
37
481
245
20
121
386
1,303
6
1,180
386
1 These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit payments are payable from trustee-administered
funds. The difference will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2014.
TRANSACTIONS WITH RELATED PARTIES
The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that
are affiliated with one or more of its directors, for the supply of raw material, including recycled paper, virgin pulp and energy, as well as the
supply of unconverted and converted products, and other agreements entered into in the normal course of business. Aggregate sales by the
Corporation to its joint-venture partners and other affiliates totaled $124 million and $110 million for 2014 and 2013 respectively. Aggregate
sales to the Corporation from its joint-venture partners and other affiliates came to $181 million and $110 million for 2014 and 2013 respectively.
Starting in June 2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the
Corporation has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to
purchase the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in commitments in Note
27 is the minimum amount to be paid to Greenpac, which corresponds to the potential lost gross margin on 340,000 tons.
On September 30, 2014, the Corporation sold a plant manufacturing consumer goods made from recovered plastics in its Specialty Products
Group, to Laurent Lemaire, a director and major shareholder of the Corporation, at a value determined to be fair by the independent members
of the Board. The independent directors of the Board reviewed all options for this business and determined that the sale to Mr. Lemaire was
in the best interests of the Corporation and the employees of the consumer plastics business.
58
58
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
IFRS 7 — FINANCIAL INSTRUMENTS DISCLOSURES
IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial
instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial
Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to
IAS 32 were effective as of January 1, 2014. The Corporation evaluated this standard and there is no impact on the consolidated financial
statements.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 — REVENUE RECOGNITION
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue recognition standards,
including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty Programs. The standard sets out the requirements
for recognizing revenue. Specifically, the new standard introduces a comprehensive framework with the general principle being that an entity
recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard introduces more prescriptive guidance than was included in
previous standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for certain
types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2017 with early adoption permitted. At
this time, the Corporation is reviewing the impact that this standard will have on its consolidated financial statements.
IFRS 9 — FINANCIAL INSTRUMENTS
In July 2014, the IASB released the final version of IFRS 9, Financial Instruments. This standard addresses classification and measurement
of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments:
Recognition and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through
profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are recognized either at fair value
through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through
other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return on investment; however,
other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.
Requirements for financial liabilities carry forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities
designated at fair value through profit and loss would generally be recorded in the statement of other comprehensive income. It also includes
guidance on hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of
revenues and expenses during the reporting period. On a regular basis and with the information available, Management reviews its estimates,
including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments,
contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment
and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings
in the period in which they occur.
A. IMPAIRMENT OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or a CGU, the Corporation uses several key assumptions, based on external information
on the industry when available, and including estimated production levels, selling prices, volume, raw material costs, foreign exchange rates,
growth rates, discounting rates and capital spending.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however these assumptions
involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change
and therefore could impact the valuation of the assets in the next year.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 24)
GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, operating margins and cash flows were projected for a
period of five years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considered past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital ("WACC") for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment, based on publicly available information.
FOREIGN EXCHANGE RATES
Foreign exchange rates are determined using the financial institutions' average forecast for the first two years of forecasting. For the three
following years, the Corporation uses the last five years' historical average of the foreign exchange rate. Terminal rate is based on historical
data of the last 20 years and adjusted to reflect management best estimate.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing
tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the Corporation's
assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets,
which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension liability.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages of
employees and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.
Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually.
CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS
Significant judgment is applied in assessing whether certain investment structures result in control, joint control or significant influence over
the operations of the investment. Management's assessment of control, joint control or significant influence over an investment will determine
the accounting treatment for the investment.The Corporation has a 59.7% interest in an associate ("Greenpac"). Greenpac's Shareholders
agreement requires a majority of 80% for all decision-making related to relevant activities. Consequently, the Corporation does not have the
power over relevant activities of Greenpac and its participation is accounted for as an associate.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis CONTROLS AND PROCEDURES
EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Corporation's President and Chief Executive Officer, and the Vice-President and Chief Financial Officer have designed, or caused to be
designed under their supervision, disclosure controls and procedures (DC&P), and internal controls over financial reporting (ICFR) as defined
in National Instrument 52-109, “Certification of Disclosure in Issuer's Annual and Interim Filings”, in order to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS.
The DC&P have been designed to provide reasonable assurance that material information relating to the Corporation is made known to the
President and Chief Executive Officer, and the Vice-President and Chief Financial Officer by others, and that information required to be
disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under securities legislation
is recorded, processed, summarized and reported within the time periods specified in securities legislation. The President and Chief Executive
Officer and the Vice-President and Chief Financial Officer, have concluded, based on their evaluation, that the Corporation's DC&P were
effective as at December 31, 2014 for providing reasonable assurance that material information related to the issuer is made known to them
by others within the Corporation.
The President and Chief Executive Officer, and the Vice-President and Chief Financial Officer have assessed the effectiveness of the ICFR
as at December 31, 2014, based on the control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 COSO Framework). Based on this assessment, they have concluded that the Corporation’s ICFR were effective as at December 31,
2014 and expect to certify the Corporation’s annual filings with the U.S. Securities and Exchange Commission on Form 40-F, as required by
the United States Sarbanes-Oxley Act.
During the quarter ended December 31, 2014, there were no changes to the Corporation's ICFR that have materially affected, or are reasonably
likely to materially affect, its ICFR.
RISK FACTORS
As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in selling
prices for its principal products, costs of raw material, interest rates and foreign currency exchange rates, all of which impact the Corporation’s
financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks through regular
operating and financing activities, and, on a limited basis, through the use of derivative financial instruments. We use these derivative financial
instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key areas of business risks
and uncertainties that we have identified, and our mitigating strategies. The risk areas below are listed in no particular order, as risks are
evaluated based on both severity and probability. Readers are cautioned that the following is not an exhaustive list of all the risks we are
exposed to, nor will our mitigation strategies eliminate all risks listed.
a) The markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well as
raw material and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability
and financial position.
The markets for some of the Corporation’s products, particularly containerboard and boxboard, are highly cyclical. As a result, prices for these
types of products and for its two principal raw material, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely
continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced
by the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United
States, the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and by consumer
preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending
by consumers and businesses results in decreased demand, which can potentially cause downward price pressure. Industry participants may
also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward
price pressure. Depending on market conditions and related demand, Cascades may have to take market-related downtime. In addition, the
Corporation may not be able to maintain current prices or implement additional price increases in the future. If Cascades is unable to do so,
its revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase
capacity utilization rates, which could also adversely affect the Corporation’s business, operating results and financial position. Prices for
recycled and virgin fibre also fluctuate considerably. The costs of these material present a potential risk to the Corporation’s profit margins,
in the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre
generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If Cascades wasn’t able
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis to implement increases in the selling prices for its products to compensate for increases in the price of recycled or virgin fibre, the Corporation’s
profitability and cash flows would be adversely affected. In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam,
which it then uses in the production process and to operate machinery. Energy prices, particularly for natural gas and fuel oil, have continued
to remain very volatile. Cascades continues to evaluate its energy costs and consider ways to factor energy costs into its pricing. However,
should energy prices increase, the Corporation’s production costs, competitive position and operating results would be adversely affected. A
substantial increase in energy costs would adversely affect the Corporation’s operating results and could have broader market implications
that could further adversely affect the Corporation’s business or financial results.
To mitigate price risk, our strategies include the use of various derivative financial instrument transactions, whereby it sets the price for notional
quantities of old corrugated containers, electricity and natural gas.
Additional information on our North American electricity and natural gas hedging programs as at December 31, 2014 is set out below:
NORTH AMERICAN ELECTRICITY HEDGING
Electricity consumption
Electricity consumption in a regulated market
% of consumption hedged in a de-regulated market (2015)
Average prices (2015 - 2017) (in US$, per KWh)
Fair value as at December 31, 2014 (in millions of CAN$)
NORTH AMERICAN NATURAL GAS HEDGING
Natural gas consumption
% of consumption hedged (2015)
Average prices (2015 - 2018) (in US$, per mmBTU) (in CAN$, per GJ)
Fair value as at December 31, 2014 (in millions of CAN$)
UNITED STATES
CANADA
34%
48%
22%
0.043
$
(0.6) $
66%
72%
42%
0.275
0.2
UNITED STATES
CANADA
38%
48%
4.84
$
(6.7) $
62%
69%
4.32
(11.7)
$
$
$
$
b) Cascades faces significant competition and some of its competitors may have greater cost advantages or be able to achieve
greater economies of scale, or be able to better withstand periods of declining prices and adverse operating conditions, which
could negatively affect the Corporation’s market share and profitability.
The markets for the Corporation’s products are highly competitive. In some of the markets in which Cascades competes, such as tissue
papers, it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition tends to
be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products segment, it also
faces competition from alternative packaging materials, such as vinyl, plastic and Styrofoam, which can lead to excess capacity, decreased
demand and pricing pressures. Competition in the Corporation’s markets is primarily based on price, as well as customer service and the
quality, breadth and performance characteristics of its products. The Corporation’s ability to compete successfully depends on a variety of
factors, including:
•
•
•
its ability to maintain high plant efficiencies, operating rates and lower manufacturing costs
the availability, quality and cost of raw material, particularly recycled and virgin fibre, and labour, and
the cost of energy.
Some of the Corporation’s competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and
governmental regulations to comply with than Cascades does. For example, fully integrated manufacturers, which are those whose
requirements for pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that
are not fully integrated, such as Cascades, in periods of relatively high raw material pricing, in that the former are able to ensure a steady
source of these raw material at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated
than Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre
at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than Cascades
is, which may allow them to achieve greater economies of scale on a global basis or to better withstand periods of declining prices and adverse
operating conditions. In addition, there has been an increasing trend among the Corporation’s customers towards consolidation. With fewer
customers in the market for the Corporation’s products, the strength of its negotiating position with these customers could be weakened, which
could have an adverse effect on its pricing, margins and profitability.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis To mitigate competition risk, Cascades’ targets are to offer quality products that meet customers’ needs at competitive prices and to provide
good customer service.
c) Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect
its business, operating results, profitability and financial condition.
Cascades has customers and operations located outside Canada. In 2014, sales outside Canada, in Canadian dollars, represented
approximately 64% of the Corporation’s consolidated sales, including 38% in the United States. In 2014, 29% of sales from Canadian operations
were made to the United States.
The Corporation’s international operations present it with a number of risks and challenges, including:
•
•
•
the effective marketing of its products in other countries
tariffs and other trade barriers, and
different regulatory schemes and political environments applicable to the Corporation’s operations, in areas such as environmental
and health and safety compliance.
In addition, the Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in other
currencies, primarily the U.S. dollar and the Euro. The appreciation of the Canadian dollar against the U.S. dollar over the last few years has
adversely affected the Corporation’s reported operating results and financial condition. This had a direct impact on export prices and also
contributed to reducing Canadian dollar prices in Canada, because several of the Corporation’s product lines are priced in U.S. dollars.
However, a substantial portion of the Corporation’s debt is also denominated in currencies other than the Canadian dollar. The Corporation
has senior notes outstanding and also some borrowings under its credit facility that are denominated in U.S. dollars and in Euros, in the
amounts of US$853 million and €169 million respectively as at December 31, 2014.
Moreover, in some cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can negatively
affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility, where
the facility faces competition from non-local producers, as well as the Corporation’s ability to successfully market its products in export markets.
As a result, if the Canadian dollar were to remain permanently strong compared to the U.S. dollar and the Euro, it could affect the profitability
of the Corporation’s facilities, which could lead Cascades to shut down facilities either temporarily or permanently, all of which could adversely
affect its business or financial results. To mitigate the risk of currency rises from future commercial transactions, recognized assets and
liabilities, and net investments in foreign operations, which are partially covered by purchases and debt, Management has implemented a
policy for managing foreign exchange risk against the relevant functional currency.
The Corporation uses various foreign exchange forward contracts and related currency option instruments to anticipate sales net of purchases,
interest expenses and debt repayment. Gains or losses from the derivative financial instruments designated as hedges are recorded under
“Other comprehensive income (loss)” and are reclassified under earnings in accordance with the hedge items.
Additional information on our North American foreign exchange hedging program is set out below:
NORTH AMERICAN FOREIGN EXCHANGE HEDGING 1
Sell contracts and currency options on net exposure to $US:
Total amount (in millions of US$)
Estimated % of sales, net of expenses from Canadian operations (excluding subsidiaries with non-controlling interest)
Average rate (US$/CAN$)
Fair value as at December 31, 2014 (in millions of CAN$)
1 See Note 26 of the audited consolidated financial statements for more details on derivatives.
$
$
2015
$
45
30%
0.9010
(2) $
2016
45
30%
0.8861
(4)
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis d) The Corporation’s operations are subject to comprehensive environmental regulations and involve expenditures that may be
material in relation to its operating cash flow.
The Corporation is subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all countries
in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other things:
•
•
•
•
•
air emissions
water discharges
use and handling of hazardous materials
use, handling and disposal of waste, and
remediation of environmental contamination.
The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
as well as to other applicable legislation in the United States, Canada and Europe that holds companies accountable for the investigation and
remediation of hazardous substances. The Corporation’s European subsidiaries are also subject to the Kyoto Protocol, aimed at reducing
worldwide CO2 emissions. Each unit has been allocated emission rights (“CO2 quota”). On a calendar-year basis, the Corporation must buy
the necessary credits to cover its deficit, on the open market, if its emissions are higher than quota.
The Corporation’s failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines,
penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations, or requiring corrective
measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It is difficult
to predict the future development of such laws and regulations, or their impact on future earnings and operations, but these laws and regulations
may require capital expenditures to ensure compliance. In addition, amendments to, or more stringent implementation of, current laws and
regulations governing the Corporation’s operations could have a material adverse effect on its business, operating results or financial position.
Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health and safety compliance
on an annual basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be forced to curtail other capital
expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations has become increasingly strict.
The Corporation may discover currently unknown environmental problems or conditions in relation to its past or present operations, or may
face unforeseen environmental liabilities in the future. These conditions and liabilities may:
•
•
require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations, or
result in governmental or private claims for damage to person, property or the environment.
Either of these could have a material adverse effect on the Corporation’s financial condition or operating results.
Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and
remediation of soil, surface and groundwater contamination, including contamination caused by other parties, on properties that it owns or
operates, and on properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result, the
Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The
Corporation may become involved in additional proceedings in the future, the total amount of future costs and other environmental liabilities
of which could be material.
To date, the Corporation is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, we
expect to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental
requirements.
EMISSIONS MARKET
The Corporation is exposed to the emissions trading market and has to hold carbon credits equivalent to its emissions. Depending on
circumstances, the Corporation may have to buy credits on the market or could sell some in the future. These transactions would have no
significant effect on the financial position of the Corporation and it is not anticipated that it will change in the future.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis e) Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage.
Cascades carries comprehensive liability, fire and extended coverage insurance on most of its facilities, with policy specifications and insured
limits customarily carried in its industry for similar properties. The cost of the Corporation’s insurance policies has increased over the past few
years. In addition, some types of losses, such as losses resulting from wars, acts of terrorism or natural disasters, are generally not insured
because they are either uninsurable or not economically practical. Moreover, insurers have recently become more reluctant to insure against
these types of events. Should an uninsured loss or a loss in excess of insured limits occur, Cascades could lose capital invested in that
property, as well as the anticipated future revenues derived from the manufacturing activities conducted on that property, while remaining
obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business,
operating results or financial condition.
To mitigate the risk subject to insurance coverage, the Corporation reviews its strategy annually with the Board of Directors and is seeking
different alternatives to achieve more efficient forms of insurance coverage, at the lowest costs possible.
f) Labour disputes could have a material adverse effect on the Corporation’s cost structure and ability to run its mills and
plants.
As at December 31, 2014, the Corporation had approximately 10,700 employees, of whom approximately 9,000 were employees of its
Canadian and United States operations. Approximately 33% of the Corporation’s employees are unionized under 26 separate collective
bargaining agreements. In addition, in Europe, some of the Corporation’s operations are subject to national industry collective bargaining
agreements that are renewed on an annual basis. The Corporation’s inability to negotiate acceptable contracts with these unions upon
expiration of an existing contract could result in strikes or work stoppages by the affected workers, and increased operating costs as a result
of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or another form of work stoppage,
Cascades could experience a significant disruption in operations or higher labour costs, which could have a material adverse effect on its
business, financial condition, operating results and cash flow. Of the Corporation’s 26 collective bargaining agreements in North America, 11
will expire in 2015 and 4 more in 2016.
The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the process
of negotiating with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful in negotiating
new agreements on satisfactory terms, if at all.
g) Cascades may make investments in entities that it does not control and may not receive dividends or returns from those
investments in a timely fashion or at all.
Cascades has established joint ventures, made investment in associates and acquired significant participations in subsidiaries in order to
increase its vertical integration, enhance customer service and increase efficiencies in its marketing and distribution in the United States and
other markets. The Corporation’s principal joint ventures, associates and significant participations in subsidiaries are:
•
•
•
•
•
three 50%-owned joint ventures with Sonoco Products Corporation, of which two are in Canada and one in the United States, that produce
specialty paper packaging products such as headers, rolls and wrappers
a 73%-owned subsidiary, Cascades Recovery Inc., a Canadian operator of wastepaper recovery and recycling operations
a 34.23% interest in Boralex Inc., a Canadian public corporation and a major electricity producer whose core business is the development
and operation of power stations that generate renewable energy, with operations in Canada, the northeastern United States and France.
In January 2015, Boralex issued common shares to finance its acquisition of Enel Green Power France in December 2014. Taking into
consideration this issuance, Cascades' interest in Boralex now stands at 27.4%.
a 57.61%-owned subsidiary, RdM, a European manufacturer of recycled boxboard, and
a 59.7% interest in Greenpac Mill LLC, an American corporation that manufactures a light-weight linerboard made with 100% recycled
fibres.
Apart from Cascades Recovery and RdM, Cascades does not have effective control over these entities. The Corporation’s inability to control
entities in which it invests may affect its ability to receive distributions from those entities or to fully implement its business plan. The incurrence
of debt or entrance into other agreements by an entity not under the Corporation’s control may result in restrictions or prohibitions on that
entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by contract or by law from paying dividends
or making distributions to Cascades, the Corporation may not be able to influence the payout or timing of these dividends or distributions. In
addition, if any of the other investors in a non-controlled entity fails to observe its commitments, the entity may not be able to operate according
to its business plan or Cascades may be required to increase its level of commitment. If any of these events were to transpire, the Corporation’s
business, operating results, financial condition and ability to make payments on the notes could be adversely affected.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of
these agreements contain “shotgun” provisions, which provide that if one Shareholder offers to buy all the shares owned by the other parties
to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering Shareholder at the same
price and conditions. Some of the agreements also stipulate that, in the event that a Shareholder is subject to bankruptcy proceedings or
otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled to invoke the ''shotgun'' provision or sell
their shares to a third party. The Corporation’s ability to purchase the other Shareholders’ interests in these joint ventures if they were to
exercise these ''shotgun'' provisions could be limited by the covenants in the Corporation’s credit facility and the indenture. In addition, Cascades
may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need arise, which could result in the
Corporation having to sell its interests in these entities or otherwise alter its business plan.
h) Acquisitions have been, and are expected to continue to be, a substantial part of the Corporation’s growth strategy, which could
expose the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and
unforeseen liabilities, among other business risks.
Acquisitions have been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic
acquisitions in the future. The Corporation’s ability to consummate and to effectively integrate any future acquisitions on terms that are
favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent necessary,
its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional risks, including:
•
•
•
•
•
•
difficulty in integrating and managing newly acquired operations, and in improving their operating efficiency
difficulty in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses
entry into markets in which Cascades has little or no direct prior experience
the Corporation’s ability to retain key employees of the acquired corporation
disruptions to the Corporation’s ongoing business, and
diversion of management time and resources.
In addition, future acquisitions could result in Cascades' incurring additional debt to finance the acquisition or possibly assuming additional
debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert
Management's attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected
synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating results,
financial condition and ability to service debt, including its outstanding senior notes.
Although Cascades generally performs a due diligence investigation of the businesses or assets that it acquires, and anticipates continuing
to do so for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due
diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to
minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances
be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully
cover the liabilities because of their limited scope, amount or duration, or the financial resources of the indemnitor or warrantor, or for other
reasons.
i) The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a
material adverse effect.
IFRS requires that Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a write-down of
such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the
Corporation’s reported earnings. Furthermore, a reduction in the Corporation’s asset value could have a material adverse effect on the
Corporation’s compliance with total debt-to-capitalization tests under its current credit facilities and, as a result, limit its ability to access further
debt capital.
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AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis j) Certain Cascades insiders collectively own a substantial percentage of the Corporation’s common shares.
Messrs. Bernard, Laurent and Alain Lemaire (“the Lemaires”) collectively own 32.5% of the common shares as at December 31, 2014, and
there may be situations in which their interests and the interests of other holders of common shares will not be aligned. Because the Corporation’s
remaining common shares are widely held, the Lemaires may be effectively able to:
•
•
•
elect all of the Corporation’s directors and, as a result, control matters requiring Board approval
control matters submitted to a Shareholder vote, including mergers, acquisitions and consolidations with third parties, and the sale of all
or substantially all of the Corporation’s assets, and
otherwise control or influence the Corporation’s business direction and policies.
In addition, the Lemaires may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance
the value of their equity investment, even though the transactions might involve increased risk to the holders of the common shares.
k) If Cascades is not successful in retaining or replacing its key personnel, particularly if the Lemaires do not stay active in the
Corporation’s business, its business, financial condition or operating results could be adversely affected.
Although Cascades believes that the Lemaires will remain active in the business and that Cascades will continue to be able to attract and
retain other talented personnel, and replace key personnel should the need arise, competition in recruiting replacement personnel could be
significant. On May 9, 2013, Mr. Mario Plourde was appointed as the new President and Chief Executive Officer (“CEO”) of the Corporation,
following a two-year transition as Chief Operating Officer. Cascades does not carry key-man insurance on the Lemaires or on any other
members of its senior management.
l) Risks relating to the Corporation’s indebtedness and liquidity.
The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its obligations
under its outstanding indebtedness. The Corporation has a significant amount of debt. As of December 31, 2014, it had $1,642 million in
outstanding total debt on a consolidated basis, including capital-lease obligations. The Corporation also had $410 million available under its
revolving credit facility. On the same basis, its consolidated ratio of net debt to total equity as of December 31, 2014 was 61.7%. The
Corporation’s actual financing expense, including interest on employees' future benefits, was $107 million, excluding the loss on refinancing
of long-term debt, for 2014. Cascades also has significant obligations under operating leases, as described in its audited consolidated financial
statements that are incorporated by reference herein.
In 2014, we refinanced our 7.75% unsecured senior notes of US$500 million and $200 million, due in 2017 and in 2016, respectively. The
Corporation issued 5.50% unsecured senior notes of US$550 million, due in 2022, and 5.50% unsecured senior notes of $250 million, due
in 2021. We allocated the proceeds of these new notes to repurchase the US$500 million notes due in 2017 and the $200 million notes due
in 2016. The remaining amounts (US$50 million and $50 million) were used to pay a premium totaling $31 million and refinancing costs of
$13 million and to reduce our credit facility utilization. The refinancing of these notes will reduce our future interest expense by approximately
US$8 million and $6 million annually.
The Corporation has outstanding senior notes rated by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s (“S&P”).
During the fourth quarter of 2014, Standard & Poor's, a rating service agency, upgraded the unsecured debt rating to ''B+'' of the Corporation
from ''B'' following the review of its recovery analysis methodology calculation. During the second quarter of 2013, Standard & Poor's
downgraded the long-term corporate credit rating of the Corporation to ''B+'' from ''BB-'' on slower de-leveraging, with a stable outlook. This
has caused an increase of 37.5 basis points in the interest rate on our revolving credit facility in the second half of 2013 and for future periods.
67
67
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating as at the date on which this MD&A
was approved by the Board of Directors, and the evolution of these ratings compared to past years:
Credit rating (outlook)
2004
2005 - 2006
2007
2008
2009 - 2010
2011
2012
2013
2014
MOODY'S
Ba1/Ba2/Ba3 (stable)
Ba1/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (negative)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
STANDARD & POOR'S
BBB-/BB+/BB+ (negative)
BB+/BB/BB- (negative)
BBB-/BB/BB- (stable)
BB+/BB-/B+ (negative)
BB+/BB-/B+ (stable)
BB+/BB-/B+ (positive)
BB+/BB-/B+ (negative)
BB/B+/B (stable)
BB/B+/B+ (stable)
This facility is in place with a core group of highly rated international banks. The Corporation may decide to enter into certain derivative
instruments to reduce interest rates and foreign exchange exposure.
The Corporation’s leverage could have major consequences for holders of its common shares. For example, it could:
• make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness
•
increase the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions, and require it
to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash flow to fund working
capital, capital expenditures, acquisitions and other general corporate purposes
limit its flexibility in planning for, or reacting to, changes in its business and industry, and
limit its ability to obtain additional sources of financing.
•
•
Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described
above. Even though we are substantially leveraged, we and our subsidiaries will be able to incur substantial additional indebtedness in the
future. Although our credit facility and the indentures governing the notes restrict us and our restricted subsidiaries from incurring additional
debt, these restrictions are subject to important exceptions and qualifications. If we or our subsidiaries incur additional debt, the risks that we
and they now face as a result of our leverage could intensify.
The Corporation’s operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react to
market conditions, or to meet its capital needs. The Corporation’s credit facilities and the indenture governing its senior notes include a
number of significant restrictive covenants. These covenants restrict, among other things, the Corporation’s ability to:
borrow money
pay dividends on stock or redeem stock or subordinated debt
•
•
• make investments
•
•
•
•
•
•
•
•
sell assets, including capital stock in subsidiaries
guarantee other indebtedness
enter into agreements that restrict dividends or other distributions from restricted subsidiaries
enter into transactions with affiliates
create or assume liens
enter into sale and leaseback transactions
engage in mergers or consolidations, and
enter into a sale of all or substantially all of our assets.
These covenants could limit the Corporation’s ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s
current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve certain financial and
operating results, and maintain compliance with specified financial ratios. The Corporation’s ability to comply with these covenants and
requirements may be affected by events beyond its control, and it may have to curtail some of its operations and growth plans to maintain
compliance.
The restrictive covenants contained in the Corporation’s senior note indenture, along with the Corporation’s credit facility, do not apply to its
subsidiaries with non-controlling interest.
68
68
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis The Corporation’s failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a
result of events beyond its control or due to other factors, could result in an event of default that could cause accelerated repayment
of the debt. If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its
other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger
a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted
debt could declare amounts outstanding with respect to that debt, which would then be immediately due and payable. The Corporation’s
assets and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may
not be able to re-finance or re-structure the payments on the applicable debt. Even if the Corporation were able to secure additional financing,
it may not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions may
affect the Corporation’s ability to comply with its covenants, and could require it to take actions to reduce its debt or to act in a manner contrary
to its current business objectives.
m) Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service
obligations.
Cascades is structured as a holding corporation, and its only significant assets are the capital stock or other equity interests in its subsidiaries,
joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through these entities.
Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the earnings of its subsidiaries, joint
ventures and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other payments made by
these entities to Cascades. The ability of these entities to pay dividends or make other payments or advances to Cascades will depend on
their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt. In
the case of the Corporation’s joint ventures and minority investments, Cascades may not exercise sufficient control to cause distributions to
itself. Although its credit facility and the indenture, respectively, limit the ability of its restricted subsidiaries to enter into consensual restrictions
on their ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures or minority
investments. The limitations are also subject to important exceptions and qualifications. The ability of the Corporation’s subsidiaries to generate
cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its debt obligations will depend on their
future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of
the Corporation’s control. If the Corporation’s subsidiaries do not generate sufficient cash flow from operations to satisfy the Corporation’s
debt obligations, Cascades may have to undertake alternative financing plans, such as re-financing or re-structuring its debt, selling assets,
reducing or delaying capital investments, or seeking to raise additional capital. Re-financing may not be possible, and any assets may not be
able to be sold, or, if they are sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available
on acceptable terms, if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments
in effect at the time. The Corporation’s inability to generate sufficient cash flow to satisfy its debt obligations, or to re-finance its obligations
on commercially reasonable terms, would have an adverse effect on its business, financial condition and operating results. The earnings of
the Corporation’s operating subsidiaries and the amount that they are able to distribute to the Corporation as dividends or otherwise may not
be adequate for the Corporation to service its debt obligations.
n) Risks related to the common shares.
The market price of the common shares may fluctuate, and purchasers may not be able to re-sell the common shares at or above
the purchase price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporation’s business,
including announcements of new developments, fluctuations in the Corporation’s operating results, sales of the common shares in the
marketplace, failure to meet analysts’ expectations, general conditions in all of our segments or the worldwide economy. In recent years, the
common shares, the stock of other companies operating in the same sectors and the stock market in general have experienced significant
price fluctuations, which have been unrelated to the operating performance of the affected companies. There can be no assurance that the
market price of the common shares will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated
to the Corporation’s performance.
o) Cash-flow and fair-value interest rate risks.
As the Corporation has no significant interest-bearing assets, its earnings and operating cash flows are substantially independent of changes
in market interest rates.
The Corporation’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to a cash-
flow interest rate risk. Borrowings issued at a fixed rate expose the Corporation to a fair-value interest rate risk.
69
69
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis p) Credit risk.
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with creditworthy financial institutions.
The Corporation is exposed to credit risk on accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit
policies include the analysis of a customer’s financial position and a regular review of its credit limits. The Corporation also believes that no
particular concentration of credit risks exists due to the geographic diversity of its customers and the procedures in place for managing
commercial risks. Derivative financial instruments include an element of credit risk, should the counterparty be unable to meet its obligations.
q) Enterprise Resource Planning (ERP) implementation.
The Corporation decided to modernize its financial information system with the implementation of an integrated Enterprise Resource Planning
(ERP) system. The Corporation identified the risks associated with said project and adopted a step-by-step plan to address any risks related
to the implementation process. The Corporation dedicated a project team, required corporate oversight with the appropriate skills and
knowledge, and retained the services of consultants to provide expertise and training. Supported by senior management and key personnel,
the Corporation undertook a detailed analysis of its requirements during 2010 and, in November of 2010, successfully completed a pilot project
in one of its plants. The project team then finalized a detailed blueprint for its manufacturing and some of its converting operations, and started
implementing the solution in its business units in 2012. The implementation is still ongoing as the Corporation is reviewing its internal processes
at the same time, to maximize the realization of benefits and reduce risks.
70
70
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 12, 2015
The accompanying consolidated financial statements are the responsibility of the management of Cascades Inc., and have been reviewed
by the Audit and Finance Committee, and approved by the Board of Directors.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IFRS”) and include certain estimates that reflect Management’s best judgment.
The Management of the Corporation is also responsible for all other information included in this Annual Report and for ensuring that this
information is consistent with the Corporation’s consolidated financial statements and business activities.
The Management of the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and
procedures for financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS. Such
internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding of
assets.
External and internal auditors have free and independent access to the Audit and Finance Committee, which comprises outside independent
directors. The Audit and Finance Committee, which meets regularly throughout the year with members of management and the external and
internal auditors, reviews the consolidated financial statements and recommends their approval to the Board of Directors.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below.
Mario Plourde
President and Chief Executive Officer - Kingsey Falls, Canada
Allan Hogg
Vice-President and Chief Financial Officer - Kingsey Falls, Canada
71
71
AnnuAl report CAsCAdes 2014 consolidated financial statements
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 12, 2015
We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated
balance sheets as at December 31, 2014 and 2013, and the consolidated statements of earnings (loss), comprehensive income (loss), equity
and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as Management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its
subsidiaries as at December 31, 2014 and 2013, and their financial performance and their cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Montréal, Canada
1 FCPA auditor, FCA, public accountancy permit No. A108517
72
72
AnnuAl report CAsCAdes 2014 consolidated financial statements CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current income tax assets
Inventories
Financial assets
Assets of disposal group classified as held for sale
Long-term assets
Investments in associates and joint ventures
Property, plant and equipment
Intangible assets with finite useful life
Financial assets
Other assets
Deferred income tax assets
Goodwill and other intangible assets with indefinite useful life
Liabilities and Equity
Current liabilities
Bank loans and advances
Trade and other payables
Current income tax liabilities
Current portion of long-term debt
Current portion of provisions for contingencies and charges
Current portion of financial liabilities and other liabilities
Liabilities of disposal group classified as held for sale
Long-term liabilities
Long-term debt
Provisions for contingencies and charges
Financial liabilities
Other liabilities
Deferred income tax liabilities
Equity attributable to Shareholders
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Non-controlling interest
Total equity
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
NOTE
DECEMBER 31,
2014
DECEMBER 31,
2013
6 and 14
7 and 14
26
5
8
9 and 14
10
26
11
17
10
12
14
13
15 and 26
5
14
13
26
15
17
18
19
20
29
453
13
462
1
72
1,030
259
1,573
183
25
83
185
335
3,673
46
557
5
40
11
16
32
707
1,556
33
45
191
138
2,670
483
18
454
(62)
893
110
1,003
3,673
23
512
34
543
2
—
1,114
261
1,684
196
17
108
118
333
3,831
56
590
2
39
2
11
—
700
1,540
37
39
212
109
2,637
482
17
642
(60)
1,081
113
1,194
3,831
Alain Lemaire
DIRECTOR
Georges Kobrynsky
DIRECTOR
73
73
AnnuAl report CAsCAdes 2014 consolidated financial statements
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(For the years ended December 31 (in millions of Canadian dollars, except per-share amounts and number of shares)
NOTE
Sales
Cost of sales and expenses
Cost of sales (including depreciation and amortization of $174 million; 2013 — $167 million)
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Loss (gain) on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Loss on refinancing of long-term debt
Foreign exchange loss (gain) on long-term debt and financial instruments
Share of results of associates and joint ventures
Profit (loss) before income taxes
Provision for income taxes
Net earnings (loss) from continuing operations including non-controlling interest for the year
Net loss from discontinued operations for the year
Net earnings (loss) including non-controlling interest for the year
Net earnings attributable to non-controlling interest
Net earnings (loss) attributable to Shareholders for the year
Net earnings (loss) from continuing operations per basic and diluted common share
Net earnings (loss) per basic and diluted common share
Weighted average basic number of common shares outstanding
Weighted average number of diluted common shares
Net earnings (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Net earnings (loss)
The accompanying notes are an integral part of these consolidated financial statements.
21
21
23
24
26
25
25
14
17
5
5
2014
3,561
3,063
334
—
23
(2)
6
3,424
137
101
6
44
30
—
(44)
16
(60)
(83)
(143)
4
(147)
$
$
(0.68) $
(1.57) $
94,025,600
95,355,998
(64)
(83)
(147)
2013
3,370
2,863
335
3
2
(4)
(5)
3,194
176
104
8
—
(2)
3
63
19
44
(30)
14
3
11
0.44
0.11
93,885,402
94,694,761
41
(30)
11
74
74
AnnuAl report CAsCAdes 2014 consolidated financial statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31 (in millions of Canadian dollars)
NOTE
Net earnings (loss) including non-controlling interest for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to earnings
Translation adjustments
Change in foreign currency translation of foreign subsidiaries
Change in foreign currency translation related to net investment hedging activities
Income taxes
Cash flow hedges
Change in fair value of foreign exchange forward contracts
Change in fair value of interest rate swaps
Change in fair value of commodity derivative financial instruments
Income taxes
Items that are reclassified to retained earnings
Actuarial gain (loss) on post-employment benefit obligations
Income taxes
Other comprehensive income (loss)
Comprehensive income (loss) including non-controlling interest for the year
Comprehensive income (loss) attributable to non-controlling interest for the year
Comprehensive income (loss) attributable to Shareholders for the year
Comprehensive income (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
20
20
16
17
2014
(143)
2013
14
37
(44)
6
3
(13)
(1)
5
(7)
(39)
11
(28)
(35)
(178)
(3)
(175)
(84)
(91)
(175)
52
(30)
4
(7)
13
9
(6)
35
97
(26)
71
106
120
12
108
110
(2)
108
75
75
AnnuAl report CAsCAdes 2014 consolidated financial statements CONSOLIDATED STATEMENTS OF EQUITY
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income (loss)
Net earnings (loss)
Other comprehensive income
(loss)
Dividends
Stock options
Issuance of common shares
Balance - End of year
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
482
—
—
—
—
—
1
483
17
—
—
—
—
1
—
18
For the year ended December 31, 2014
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTEREST
(60)
1,081
113
RETAINED
EARNINGS
642
(147)
(26)
(173)
(15)
—
—
454
—
(2)
(2)
—
—
—
(62)
(147)
(28)
(175)
(15)
1
1
893
TOTAL
EQUITY
1,194
(143)
(35)
(178)
(15)
1
1
4
(7)
(3)
—
—
—
110
1,003
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income
Net earnings
Other comprehensive income
Dividends
Stock options
Acquisition of non-controlling interest
Balance - End of year
For the year ended December 31, 2013
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTEREST
482
—
—
—
—
—
—
482
16
—
—
—
—
1
—
17
567
11
70
81
(15)
—
9
642
(87)
—
27
27
—
—
—
978
11
97
108
(15)
1
9
(60)
1,081
116
3
9
12
—
—
(15)
113
TOTAL
EQUITY
1,094
14
106
120
(15)
1
(6)
1,194
The accompanying notes are an integral part of these consolidated financial statements.
76
76
AnnuAl report CAsCAdes 2014 consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (in millions of Canadian dollars)
Operating activities from continuing operations
Net earnings (loss) attributable to Shareholders for the year
Net loss from discontinued operations for the year
Net earnings (loss) from continuing operations
Adjustments for:
Financing expense and interest expense on employee future benefits
Loss on refinancing of long-term debt
Depreciation and amortization
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized loss (gain) on derivative financial instruments
Foreign exchange loss (gain) on long-term debt and financial instruments
Provision for income taxes
Share of results of associates and joint ventures
Net earnings attributable to non-controlling interest
Net financing expense paid
Premium paid on long-term debt refinancing
Net income taxes received
Dividend received
Employee future benefits and others
Changes in non-cash working capital components
Investing activities from continuing operations
Investments in associates and joint ventures
Payments for property, plant and equipment
Proceeds on disposals of property, plant and equipment
Investments in intangible and other assets
Financing activities from continuing operations
Bank loans and advances
Change in revolving credit facilities
Issuance of senior notes, net of related expenses
Repayment of senior notes
Increase in other long-term debt
Payments of other long-term debt
Settlement of derivative financial instruments
Issuance of common shares
Acquisition of non-controlling interest
Dividends paid to the Corporation's Shareholders
Change in cash and cash equivalents during the year from continuing operations
Change in cash and cash equivalents during the year from discontinued operations
Net change in cash and cash equivalents during the year
Currency translation on cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
The accompanying notes are an integral part of these consolidated financial statements.
NOTE
25
23
24
17
8
25
14
14
18
18
5
2014
(147)
83
(64)
107
44
174
—
21
6
30
16
—
4
(73)
(31)
14
15
(19)
244
(13)
231
—
(178)
7
(2)
(173)
(3)
(154)
833
(740)
23
(50)
—
1
—
(15)
(105)
(47)
54
7
(1)
23
29
2013
11
30
41
112
—
167
3
—
(6)
(2)
19
3
3
(100)
—
5
12
(26)
231
5
236
(32)
(138)
12
(15)
(173)
(31)
76
—
(10)
14
(50)
(14)
—
(19)
(15)
(49)
14
(12)
2
1
20
23
77
77
AnnuAl report CAsCAdes 2014 consolidated financial statements SEGMENTED INFORMATION
The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization,
which is not a measure of performance under International Financial Reporting Standards ("IFRS"); however, the chief operating decision-
maker ("CODM") uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment
are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as are sales to third
parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation’s accounting
policies described in Note 2.
The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief
Executive Officer has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM.
The Corporation's operations are managed in four segments: Containerboard, Boxboard Europe, Specialty Products (which constitutes the
Corporation's Packaging Products) and Tissue Papers.
For the years ended December 31 (in millions of Canadian dollars)
NOTE
5
5
5
SALES
2014
1,407
873
716
(226)
(32)
(148)
(49)
2,541
1,054
(34)
3,561
2013
1,314
837
774
(219)
(51)
(226)
(50)
2,379
1,033
(42)
3,370
OPERATING INCOME (LOSS)
BEFORE DEPRECIATION AND AMORTIZATION (OIBD)
NOTE
2014
2013
5
5
5
108
50
(4)
56
14
30
254
95
(38)
311
(174)
(107)
(44)
(30)
—
(44)
156
30
32
1
17
3
239
150
(46)
343
(167)
(112)
—
2
(3)
63
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Discontinued operations of Containerboard
Discontinued operations of Boxboard Europe
Discontinued operations of Specialty Products
Intersegment sales
Tissue Papers
Intersegment sales and others
Total
For the years ended December 31 (in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Discontinued operations of Containerboard
Discontinued operations of Boxboard Europe
Discontinued operations of Specialty Products
Tissue Papers
Corporate
Operating income before depreciation and amortization
Depreciation and amortization
Financing expense and interest expense on employee future benefits
Loss on refinancing of long-term debt
Foreign exchange gain (loss) on long-term debt and financial instruments
Share of results of associates and joint ventures
Profit (loss) before income taxes
78
78
AnnuAl report CAsCAdes 2014 segmented information PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
NOTE
2014
2013
For the years ended December 31 (in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Discontinued operations of Containerboard
Discontinued operations of Specialty Products
5
5
Tissue Papers
Corporate
Total acquisitions
Proceeds on disposals of property, plant and equipment
Capital-lease acquisitions and acquisitions included in other debts
Acquisitions of property, plant and equipment included in ''Trade and other payables''
Beginning of year
End of year
Payments for property, plant and equipment net of proceeds on disposals
(in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Intersegment eliminations
Investments in associates and joint ventures
Other investments
Total assets
34
33
19
(2)
(1)
83
88
8
179
(7)
(14)
158
33
(20)
171
44
29
22
(4)
(6)
85
47
15
147
(12)
(4)
131
28
(33)
126
TOTAL ASSETS
DECEMBER 31, 2014
DECEMBER 31, 2013
1,250
637
355
2,242
834
414
(83)
3,407
259
7
3,673
1,312
712
469
2,493
755
358
(46)
3,560
261
10
3,831
79
79
AnnuAl report CAsCAdes 2014 segmented information Information by geographic segment is as follows:
For the years ended December 31 (in millions of Canadian dollars)
2014
2013
Sales
Operations located in Canada
Within Canada
To the United States
Offshore
Operations located in the United States
Within the United States
To Canada
Offshore
Operations located in Italy
Within Italy
Other countries
Operations located in other countries
Within Europe
Other countries
Total
(in millions of Canadian dollars)
Property, plant and equipment
Canada
United States
Italy
Other countries
Total
1,249
509
24
1,782
839
50
1
890
240
146
386
378
125
503
1,201
488
26
1,715
779
49
2
830
233
137
370
349
106
455
3,561
3,370
DECEMBER 31, 2014
DECEMBER 31, 2013
845
387
282
59
1,573
1,015
304
306
59
1,684
(in millions of Canadian dollars)
DECEMBER 31, 2014
DECEMBER 31, 2013
Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assets
Canada
United States
Italy
Total
457
54
7
518
471
50
8
529
80
80
AnnuAl report CAsCAdes 2014 segmented information NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the years in the two-year period ended December 31, 2014
(Tabular amounts in millions of Canadian dollars, except per-share and option amounts and number of shares and options)
NOTE 1
GENERAL INFORMATION
Cascades Inc. and its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue products
composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address of its registered office is
404 Marie-Victorin Boulevard, Kingsey Falls. Its shares are listed on the Toronto Stock Exchange.
The Board of Directors approved the consolidated financial statements on March 12, 2015.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN CLASSIFICATION OF SHIPPING EXPENSES
In 2014, the Corporation classifies shipping expenses of $33 million as Cost of sales. As a result of this classification, the Corporation has
reclassified shipping expenses that were previously classified within Selling and administrative expenses under Cost of sales for the comparative
period, resulting in a reclassification adjustment of $36 million as at December 31, 2013.
BASIS OF PRESENTATION
The Corporation prepares its financial statements in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) as set
forth in Part 1 of the Chartered Professional Accountants of Canada (CPA Canada) Handbook – Accounting which incorporates International
Financial Accounting Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board. The key accounting policies applied in
the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all years
presented, unless otherwise stated.
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial
assets and liabilities, including derivative instruments which are measured at fair value.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Corporation, which include:
A. SUBSIDIARIES
Subsidiaries are all entities over which the Corporation has power over decisions about relevant activities. The Corporation does not have
any interest in a structured entity. The existence and effect of potential voting rights that are exercisable or convertible are considered when
assessing whether the Corporation controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred
to the Corporation. They are deconsolidated from the date on which control ceases. Accounting policies of subsidiaries have been changed,
where necessary, to ensure consistency with the policies adopted by the Corporation. The purchase method of accounting is used to account
for the acquisition of subsidiaries by the Corporation. Results of operations are consolidated commencing on the date of acquisition. The
purchase consideration is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange. The transaction costs directly attributable to the acquisition are expensed. Identifiable assets acquired, as well as liabilities
and contingent liabilities assumed in a business combination, are measured initially at their fair values at the acquisition date, irrespective of
the extent of any non-controlling interest. The excess of the purchase consideration over the fair value of the Corporation's share of the
identifiable net assets acquired is recorded as goodwill. If the purchase consideration is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the consolidated statement of earnings. Intercompany transactions, balances and
unrealized gains on transactions between subsidiaries are eliminated.
81
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AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The following are the principal subsidiaries of the Corporation:
Cascades Canada ULC
Cascades Recovery Inc.
Cascades USA Inc.
Cascades S.A.S. (France)
Cascades Europe S.A.S.
Reno de Medici S.p.A.
PERCENTAGE OWNED (%)
JURISDICTION
100
73
100
100
100
57.61
Canada
Canada
Delaware
France
France
Italy
B. TRANSACTIONS AND CHANGE IN OWNERSHIP
Acquisitions or disposals of equity interests that do not result in the Corporation obtaining or losing control are treated as equity transactions.
When the Corporation obtains or loses control, the revaluation of the previously held interest or the non-controlling interest that results in
gains or losses for the Corporation is recognized in the consolidated statement of earnings.
C. ASSOCIATES
Associates are all entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized
at cost. The Corporation's investment from associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
Unrealized gains on transactions between the Corporation and its associates are eliminated to the extent of the Corporation's interest in the
associates. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the
Corporation. Dilution gains and losses arising in investments in associates are recognized in the consolidated statement of earnings.
The Corporation assesses, at each year-end, whether there is any objective evidence that its interest in associates is impaired. If impaired,
the carrying value of the Corporation's share of the underlying assets of associates is written down to its estimated recoverable amount (being
the higher of fair value less cost of disposal or value in use) and charged to the consolidated statement of earnings.
D. JOINT VENTURES
A joint venture is an entity in which the Corporation holds a long-term interest and for which it shares joint control over decisions regarding
relevant activities. The Corporation reports its interests in joint ventures using the equity method. Accounting policies of joint ventures have
been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.
REVENUE RECOGNITION
The Corporation recognizes its sales, which consist of product sales, when it is probable that the economic benefits will flow to the Corporation,
the goods are shipped and the significant risks and benefits of ownership are transferred, the amount of revenue can be measured reliably,
and collection of the resulting receivable is reasonably assured.
Revenue is measured based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale. Historical
experience is used to estimate and provide for discounts and returns. Volume discounts are assessed based on anticipated annual sales.
FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the
Corporation has transferred substantially all risks and rewards of ownership.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the
liability simultaneously.
CLASSIFICATION
The Corporation classifies its financial instruments in the following categories: at fair value through profit or loss, held to maturity ("HTM"),
loans and receivables, available for sale ("AFS") and other liabilities. The classification depends on the purpose for which the financial
instruments were acquired or issued. Management determines the classification of its financial assets and financial liabilities at initial recognition.
Settlement date accounting is used by the Corporation for all financial assets.
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AnnuAl report CAsCAdes 2014 notes to consolidated financial statements A. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
A financial asset or financial liability is classified in this category if it is acquired principally for the purpose of selling or repurchasing in the
short term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are
recognized initially and subsequently at fair value. Transaction costs are expensed in the consolidated statement of earnings. Gains and
losses arising from changes in fair value are presented in the consolidated statement of earnings in loss (gain) on acquisition, disposal and
others in the period in which they arise. Financial assets and financial liabilities at fair value through profit or loss are classified as current,
except for the portion expected to be realized or paid beyond 12 months of the consolidated balance sheet date, which is classified as long-
term.
B. HELD TO MATURITY
HTM financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and
receivables, AFS or fair value through profit or loss that the entity has the positive intention and ability to hold to maturity. These financial
assets are measured at amortized cost. The Corporation has no HTM financial assets as at December 31, 2014 and 2013.
C. AVAILABLE-FOR-SALE FINANCIAL ASSETS
AFS investments are non-derivative financial assets that are either designated in this category or not classified in any of the other categories.
AFS investments are recognized initially at fair value plus transaction costs, and are subsequently carried at fair value. Gains or losses arising
from changes in fair value are recognized in the statement of other comprehensive income (loss). AFS investments are classified as long-
term, unless the investment matures within 12 months, or Management expects to dispose of them within 12 months.
Interest on AFS investments, calculated using the effective interest method, is recognized in the consolidated statement of earnings as part
of financing expense. Dividends on AFS equity instruments are recognized in the consolidated statement of earnings as part of loss (gain)
on derivative financial instruments when the Corporation's right to receive payment is established. When an AFS investment is sold or impaired,
the accumulated gains or losses are moved from Accumulated other comprehensive income (loss) to the consolidated statement of earnings
and included in loss (gain) on derivative financial instruments.
D. LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The
Corporation's loans and receivables comprise accounts receivable, notes receivable from business disposals, the Greenpac bridge loan and
cash and cash equivalents. Loans and receivables are initially recognized at fair value. Subsequently, loans and receivables are measured
at amortized cost using the effective interest method less a provision for impairment.
E. FINANCIAL LIABILITIES AT AMORTIZED COST
Financial liabilities at amortized cost include bank loans and advances, trade and other payables, and long-term debt. Financial liabilities at
amortized cost are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value.
Subsequently, they are measured at amortized cost using the effective interest method. They are classified as current liabilities if payment is
due within 12 months. Otherwise, they are presented as long-term liabilities.
IMPAIRMENT OF FINANCIAL ASSETS
At each report date, the Corporation assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists,
the Corporation recognizes an impairment loss, as follows:
i) Financial assets carried at amortized cost: The impairment loss is the difference between the amortized cost of the loan or receivable and
the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The carrying amount
of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.
ii) AFS financial assets: The impairment loss is the difference between the original cost of the asset and its permanent fair value decrease
at the measurement date, less any impairment losses previously recognized in the consolidated statement of earnings. This amount
represents the cumulative loss in ''Accumulated other comprehensive income (loss)'' that is reclassified to net earnings (loss).
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on AFS equity instruments
are not reversed.
83
83
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivative financial instruments as
either:
i) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);
ii) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or
iii) hedges of a net investment in a foreign operation (net investment hedge).
The Corporation formally documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives
are classified as current assets or liabilities.
A. CASH FLOW HEDGE
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the
statement of other comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated
statement of earnings.
Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss (for example, when
the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate
borrowings is recognized in the consolidated statement of earnings on the same line as the hedged item. The gain or loss relating to the
ineffective portion is recognized in the consolidated statement of earnings as part of loss (gain) on derivative financial instruments. However,
when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or property, plant
and equipment), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the
cost of the asset. The deferred amounts are ultimately recognized in Cost of goods sold in the case of inventory or in Depreciation in the case
of property, plant and equipment.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated
statement of earnings. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the consolidated statement of earnings.
B. NET INVESTMENT HEDGE
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument
relating to the effective portion of the hedge is recognized in the statement of other comprehensive income (loss). The gain or loss relating
to the ineffective portion is recognized immediately in the consolidated statement of earnings. Gains and losses accumulated in equity are
included in the consolidated statement of earnings when the foreign operation is partially disposed of or sold.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, bank balances and short-term liquid investments with original maturities of three months
or less.
ACCOUNTS RECEIVABLE
Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method,
less a provision for doubtful accounts that is based on expected collectability.
INVENTORIES
Inventories of finished goods are valued at the lower of cost, determined by either average production cost or retail method, or net realizable
value. Inventories of raw material and supplies are valued at the lower of cost or replacement value, which is the best available measure of
their net realizable value. Cost of raw material and supplies is determined using the average cost and first-in, first-out methods respectively.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated
costs necessary to make the sale.
84
84
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost less accumulated depreciation and net impairment losses, including interest incurred
during the construction period of qualifying property, plant and equipment. Repairs and maintenance costs are charged to the consolidated
statement of earnings during the period in which they are incurred. Residual values, method of depreciation and useful lives of the assets are
reviewed annually and adjusted if appropriate. Depreciation is calculated on a straight-line basis as follows:
Buildings
Machinery and equipment
Automotive equipment
Other property, plant and equipment Between 3 and 10 years
Between 20 and 33 years
Between 7 and 20 years
Between 5 and 10 years
GRANTS AND INVESTMENT TAX CREDITS
Grants and investment tax credits for property, plant and equipment are accounted for using the cost reduction method and are amortized to
earnings as a reduction of depreciation, using the same basis as that used to depreciate the related property, plant and equipment.
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use, are added to the cost of those assets, until all the activities necessary to prepare
the asset for its intended use are complete. All other borrowing costs are recognized in the consolidated statement of earnings in the period
in which they are incurred.
INTANGIBLE ASSETS
Intangible assets consist primarily of customer relationships and client lists, application software and favourable leases. They are recorded
at cost less accumulated amortization and impairment losses and amortized on a straight-line basis, over the estimated useful lives as follows:
Customer relationships and client lists
Other finite-life intangible assets
Application software
Enterprise Resource Planning (ERP)
Favourable leases
Between 2 and 30 years
Between 2 and 20 years
Between 3 and 10 years
7 years
Term of the lease
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
IMPAIRMENT
A. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
At the end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or a group
of assets may be higher than its recoverable amount. For that purpose, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows (cash generating units (CGUs)).
When the recoverable amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment
losses are recorded immediately in the consolidated statement of earnings in the line item Impairment charges and restructuring costs.
Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The revalued
carrying value is the lower of the estimated recoverable amount and the carrying amount that would have been determined had no impairment
loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is recorded directly in
the consolidated statement of earnings in the line item Impairment charges and restructuring costs.
B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
Goodwill and other intangible assets with an indefinite useful life are recognized at cost less any accumulated impairment losses. They have
an indefinite useful life due to their permanent nature since they are acquired rights or not subject to wear and tear. They are reviewed for
impairment annually on December 31 or when an event or a circumstance occurs and indicates that the value could be permanently impaired.
Goodwill and other intangible assets with an indefinite useful life are allocated to CGUs for the purpose of impairment testing based on the
level at which Management monitors it, which is not higher than an operating segment. The allocation is made to CGUs that are expected to
benefit from the business combination in which the goodwill and other intangible assets with an indefinite useful life arose. Impairment loss
on goodwill is not reversed.
85
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AnnuAl report CAsCAdes 2014 notes to consolidated financial statements
C. RECOVERABLE AMOUNTS
A recoverable amount is the higher of fair value less cost of disposal or value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a discount rate that reflects current market assessment of the time value of money and the
risks specific to the asset or CGU. When determining fair value less cost of disposal, the Corporation considers if there is a market price for
the asset being evaluated. Otherwise, the Corporation uses the income approach.
LEASES
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the consolidated statement of earnings on a straight-line basis over the term of the
lease.
The Corporation leases certain property, plant and equipment. Leases of property, plant and equipment for which the Corporation has
substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease's commencement
at the lower of the fair value of the leased property or the present value of the minimum lease payments. Property, plant and equipment
acquired under a finance lease are depreciated over the shorter of the estimated useful life of the asset or the lease term using the straight-
line method. Each lease payment is allocated between the liability and the financing expense so as to achieve a constant rate on the finance
balance outstanding. The corresponding rental obligations, net of financing expense, are included in long-term debt.
PROVISIONS FOR CONTINGENCIES AND CHARGES
Provisions for contingencies include mainly legal and other claims. A provision is recognized when the Corporation has a legal or constructive
obligation as a result of a past event and it is probable that settlement of the obligation will require a financial payment or cause a financial
loss, and a reliable estimate of the amount of the obligation can be made.
If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recorded
in the consolidated balance sheet as a separate asset, but only if it is virtually certain that the reimbursement will be received.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
the passage of time is recognized as a financing expense.
ENVIRONMENTAL RESTORATION OBLIGATIONS AND ENVIRONMENTAL COSTS
An obligation to incur restoration and environmental costs arises when environmental disturbance is caused by the development or ongoing
production of a plant or landfill site. Such costs arising from the installation of a plant and other site preparation work are provided for and
capitalized at the start of each project, or as soon as the obligation to incur such costs arises. Decommissioning costs are recorded at the
estimated amount at which the obligation could be settled at the consolidated balance sheet date, and are charged against profit over the life
of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. The discount rate is the pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. Costs for restoring subsequent
site damage which is created on an ongoing basis during production are provided for at their present values and charged against profit as
the obligation arises.
Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work which result from changes
in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related
asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the
consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not recoverable,
an impairment test is performed in accordance with the accounting policy for impairment testing.
LONG-TERM DEBT
Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of
earnings over the period of the term of the debt using the effective interest method.
Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs and amortized on a straight-
line basis over the anticipated period of the credit facility.
86
86
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements EMPLOYEE BENEFITS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (RRSP) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually
contributory and are based on the number of years of service and, in most cases the average salaries or compensation at the end of a career.
Retirement benefits are not adjusted based on inflation. The Corporation also offers its employees some post-employment benefit plans, such
as a retirement allowance, group life insurance and medical and dental plans. However, these benefits, other than pension plans, are not
funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered to the majority of the new
retirees, and the retirement allowance is not offered to those who do not meet certain criteria.
The liability recognized in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least every three
years by independent actuaries using the projected unit credit method, and updated regularly by management for any material transactions
and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting period.
As well, when an asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the Corporation
will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allows for it under
the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded. All special contributions
legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is required as at December 31, 2014, a
schedule of contributions is estimated to establish the minimum funding requirement. For other plans, we have used contributions from the
most recent actuarial report.
Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are
recorded in the statement of other comprehensive income (loss) and recognized immediately in retained earnings without recycling to the
consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings.
When restructuring a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before the
settlement.
Interest costs on pension and other post-employment benefits are recognized in the consolidated statement of earnings as Interest expense
on employee future benefits. The measurement date of the employee future benefit plans is December 31 of each year. An actuarial evaluation
is performed at least every three years. Based on their balances as at December 31, 2014, 100% of the plans were evaluated on December
31, 2013 (45% in 2012).
INCOME TAXES
The Corporation uses the liability method to recognize deferred income taxes. According to this method, deferred income taxes are determined
using the difference between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured
using enacted or substantively enacted tax rates at the consolidated balance sheet date that are expected to apply when the deferred income
taxes are expected to be recovered or settled. Deferred income tax assets are recognized when it is probable that the asset will be realized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
FOREIGN CURRENCY TRANSLATION
Items included in the financial statements of each of the Corporation's entities are measured using the currency of the primary economic
environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars,
which is Cascades' functional currency.
A. FOREIGN CURRENCY TRANSACTIONS
Transactions denominated in currencies other than the business unit's functional currency are recorded at the rate of exchange prevailing at
the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the
consolidated balance sheet date. Unrealized gains and losses on translation of monetary assets and liabilities are reflected in the consolidated
statement of earnings for the year.
B. FOREIGN OPERATIONS
The assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated balance
sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation gains or losses are deferred and
included in Accumulated other comprehensive income (loss).
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AnnuAl report CAsCAdes 2014 notes to consolidated financial statements SHARE-BASED PAYMENTS
The Corporation uses the fair value method of accounting for stock-based compensation awards granted to officers and key employees. This
method consists in recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of each
tranche is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations paid by employees,
as well as the related stock-based compensation, are credited to capital stock.
DIVIDEND DISTRIBUTION
Dividend distribution to the Corporation's Shareholders is recognized as a liability in the consolidated financial statements in the period in
which the dividends are approved by the Corporation's Board of Directors.
EARNINGS PER COMMON SHARE
Basic earnings per common share are determined using the weighted average number of common shares outstanding during the period.
Diluted earnings per common share are determined by adjusting the weighted average number of common shares outstanding for dilutive
instruments, which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this
method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise price, are
considered to have been exercised at the beginning of the period and the proceeds received are considered to have been used to redeem
common shares of the Corporation at the average market price for the period.
NOTE 3
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
IFRS 7 — FINANCIAL INSTRUMENTS DISCLOSURES
IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial
instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial
Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to
IAS 32 were effective as of January 1, 2014. The Corporation evaluated this standard and there is no impact on the consolidated financial
statements.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 — REVENUE RECOGNITION
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue recognition standards,
including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty Programs. The standard sets out the requirements
for recognizing revenue. Specifically, the new standard introduces a comprehensive framework with the general principle being that an entity
recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard introduces more prescriptive guidance than was included in
previous standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for certain
types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2017 with early adoption permitted. At
this time, the Corporation is reviewing the impact that this standard will have on its consolidated financial statements.
IFRS 9 — FINANCIAL INSTRUMENTS
In July 2014, the IASB released the final version of IFRS 9, Financial Instruments. This standard addresses classification and measurement
of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments:
Recognition and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through
profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are recognized either at fair value
through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through
other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return on investment; however,
other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.
Requirements for financial liabilities carry forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities
designated at fair value through profit and loss would generally be recorded in the statement of other comprehensive income. It also includes
guidance on hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements.
88
88
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements
NOTE 4
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of
revenues and expenses during the reporting period. On a regular basis and with the information available, Management reviews its estimates,
including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments,
contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment
and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings
in the period in which they occur.
A. IMPAIRMENT OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or a CGU, the Corporation uses several key assumptions, based on external information
on the industry when available, and including estimated production levels, selling prices, volume, raw material costs, foreign exchange rates,
growth rates, discounting rates and capital spending.
The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however these assumptions
involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change
and therefore could impact the valuation of the assets in the next year.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 24)
GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, operating margins and cash flows were projected for a
period of five years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considered past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital ("WACC") for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment, based on publicly available information.
FOREIGN EXCHANGE RATES
Foreign exchange rates are determined using the financial institutions' average forecast for the first two years of forecasting. For the three
following years, the Corporation uses the last five years' historical average of the foreign exchange rate. Terminal rate is based on historical
data of the last 20 years and adjusted to reflect management best estimate.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing
tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the Corporation's
assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets,
which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension liability.
89
89
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages of
employees and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.
Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually.
CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS
Significant judgment is applied in assessing whether certain investment structures result in control, joint control or significant influence over
the operations of the investment. Management's assessment of control, joint control or significant influence over an investment will determine
the accounting treatment for the investment.The Corporation has a 59.7% interest in an associate ("Greenpac"). Greenpac's Shareholders
agreement requires a majority of 80% for all decision-making related to relevant activities. Consequently, the Corporation does not have the
power over relevant activities of Greenpac and its participation is accounted for as an associate.
NOTE 5
DISCONTINUED OPERATIONS AND DISPOSAL
DISCONTINUED OPERATIONS
Containerboard Group
On December 11, 2014, the Containerboard Group announced that it had reached an agreement for the sale of its boxboard activities in North
America to Graphic Packaging Holding Company for $45 million. The sale was completed on February 4, 2015. Following the announcement,
impairment charges of $2 million on intangible assets, $23 million on property, plant and equipment and $6 million on spare parts were
recorded.
In the second quarter of 2014, the Containerboard Group had reviewed the recoverable value of one boxboard mill and recorded impairment
charges of $12 million on property, plant and equipment and $5 million on spare parts. In the same quarter, we also recorded impairment
charges of $16 million on notes receivable related to the 2011 disposal of our U.S. boxboard activities.
In the third quarter of 2014, the Containerboard Group sold a building in connection with a closed plant and recorded a gain of $1 million. Also
during the third quarter, in connection with our boxboard plants sold in 2011, we recorded a loss of $2 million related to an onerous lease
contract following the bankruptcy of Fusion Paperboard.
The operating results and cash flows from these activities are presented as discontinued operations and prior periods have been restated.
(in millions of Canadian dollars)
Results of the discontinued operations of North American boxboard activities
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
Depreciation and amortization
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Operating loss
Financing expense
Interest expense on employee future benefits
Recovery of income tax
Net loss from discontinued operations
(in millions of Canadian dollars)
Net cash flow of discontinued operations of North American boxboard activities
Cash flow from (used for):
Operating activities
Investing activities
Total
90
90
2014
2013
226
207
6
11
1
64
(1)
(62)
—
—
(18)
(44)
219
209
7
12
—
—
(1)
(8)
(1)
1
(2)
(6)
2014
2013
9
—
9
(10)
(2)
(12)
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE
BUSINESS SEGMENT
CONTAINERBOARD
GROUP
North American
Boxboard Activities
(in millions of Canadian dollar)
Accounts receivables
Inventories
Property, plant and equipment
Other assets
Total assets
Trade and other payables
Other liabilities
Total liabilities
Net assets classified as held for sale
Estimated selling price adjustment related to pension plan deficit as at December 31, 2014
Estimated selling price adjustment related to working capital balance as at December 31, 2014
Base selling price as per agreement
25
25
19
3
72
25
7
32
40
4
1
45
Boxboard Europe Group
On June 15, 2014, following the announcement made in 2013, we definitively ceased the operation of our virgin boxboard mill located in
Sweden. Following the closure, we recorded an impairment charge of $4 million on spare parts and severances of $7 million. An environmental
provision of $1 million was recorded as well.
In 2013, the Djupafors mill recorded severances totaling $1 million in relation to consolidation of its virgin boxboard activities in Djupafors,
Sweden. The mill also recorded an impairment charge of $10 million on property, plant and equipment. This impairment charge was recorded
due to sustained difficult market conditions which led to insufficient profitability. The recoverable amount was based on the selling price of
assets as it was higher than the income approach.
The operating results and cash flows from this activity are presented as discontinued operations and prior periods have been restated.
(in millions of Canadian dollars)
Results of the discontinued operations of Swedish virgin boxboard activities
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
Depreciation and amortization
Selling and administrative expenses
Impairment charges and restructuring costs
Net loss from discontinued operations
(in millions of Canadian dollars)
Net cash flow of the discontinued operations of Swedish virgin boxboard activities
Cash flow from (used for):
Operating activities
2014
2013
32
32
—
2
12
(14)
51
54
1
3
11
(18)
2014
2013
3
(7)
Specialty Product Group
On June 30, 2014, we sold our fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital,
for a cash consideration of $39 million, before transaction fees of $1 million, of which $37 million was received on closing and $2 million during
the third quarter. During the third quarter, the Corporation recorded and paid a preliminary working capital adjustment of $2 million. The
transaction is still subject to working capital adjustment as of December 31, 2014. A loss on disposal of $43 million was recorded in 2014.
91
91
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements On September 26, 2014, we ceased the operation of our kraft papers manufacturing activities of the Specialty Product Group located in East
Angus, Québec. The closure was announced on July 9, 2014, and an impairment charge of $2 million on spare parts and restructuring costs
of $4 million were recorded in the second quarter. At the same time, a curtailment gain of $9 million was recorded on the pension plan. In the
fourth quarter, we recorded $1 million of closure costs for the mill.
In 2013, the recoverable amount of the East Angus mill had been reviewed and impairment charges of $16 million on property, plant and
equipment and $4 million on spare parts were recorded. The strength of the Canadian dollar over the last few years combined with lower
demand reduced profitability. The recoverable amount was based on the selling prices of assets as it was higher than the income approach.
The operating results and cash flows from these activities, which constituted the specialty papers sectors, are presented as discontinued
operations and prior periods have been restated.
(in millions of Canadian dollars)
Results of the discontinued operations of specialty papers sector
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
Depreciation and amortization
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring costs
Operating loss
Interest expense on employee future benefits
Recovery of income tax
Net loss from discontinued operations
(in millions of Canadian dollars)
Net cash flow of discontinued operations of specialty papers sector
Cash flow from (used for):
Operating activities
Investing activities
Total
2014
2013
148
128
3
9
43
(2)
(33)
1
(9)
(25)
226
194
7
15
—
20
(10)
3
(5)
(8)
2014
2013
7
35
42
13
(6)
7
Corporate activities
In 2013, in Corporate activities, we also reversed a $2 million provision for which we retained liability following the Dopaco sale in 2011 as it
did not materialize.
(in millions of Canadian dollars)
Condensed net loss from discontinued operations
Condensed net loss from discontinued operations per common share
2014
(83)
Basic and diluted
$
(0.89) $
2013
(30)
(0.33)
92
92
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements DISPOSAL OF THE FINE PAPERS ACTIVITIES
Assets and liabilities of the fine papers activities at the time of disposal were as follows:
BUSINESS SEGMENT
SPECIALTY
PRODUCTS GROUP
Fine Papers Activities
(in millions of Canadian dollars)
Accounts receivables
Inventories
Property, plant and equipment
Other assets
Trade and other payables
Provisions for contingencies and charges
Other liabilities
Loss on disposal before tax and transaction fees
Transaction fees
Non-cash provision for working capital adjustment
Total consideration received
NOTE 6
ACCOUNTS RECEIVABLE
(in millions of Canadian dollars)
Accounts receivable - Trade
Receivables from related parties
Less: provision for doubtful accounts
Trade receivables - net
Provisions for volume rebates
Other
26
33
62
9
130
30
1
23
54
76
(42)
(1)
3
36
NOTE
28
2014
2013
416
19
(12)
423
(31)
61
453
458
20
(13)
465
(27)
74
512
As of December 31, 2014, trade receivables of $99 million (December 31, 2013 - $155 million) were past due but not impaired. The aging of
these trade receivables at each reporting date is as follows:
(in millions of Canadian dollars)
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due 91 days and over
Movements in the Corporation's allowance for doubtful accounts are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for doubtful accounts, net of unused beginning balance
Receivables written off during the year as uncollectable
Business disposals
Balance at end of year
93
2014
72
14
9
4
99
2013
118
23
9
5
155
2014
2013
13
4
(4)
(1)
12
12
4
(3)
—
13
93
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The change in the provision for doubtful accounts has been included in Selling and administrative expenses in the consolidated statement of
earnings.
The maximum exposure to credit risk at the reporting date approximates the carrying value of each class of receivable mentioned above.
NOTE 7
INVENTORIES
(in millions of Canadian dollars)
Finished goods
Raw material
Supplies and spare parts
2014
218
99
145
462
2013
254
128
161
543
As at December 31, 2014, finished goods, raw material and supplies and spare parts were adjusted to net realizable value ("NRV") by $7 million,
nil and $1 million, respectively (December 31, 2013 - $5 million, nil, $2 million). As at December 31, 2014, the carrying amount of inventory
carried at net realizable value consisted of $19 million in finished goods inventory, nil in raw material inventory and nil million in supplies and
spare parts (December 31, 2013 - $22 million, nil and $4 million).
The Corporation has sold all the goods that were written down in 2013. No reversal of previously written-down inventory occurred in 2014 nor
in 2013. The cost of raw material and supplies and spare parts included in Cost of sales amounted to $1,405 million (2013 - $1,268 million).
NOTE 8
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
A.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Investments in associates
Investments in joint ventures
2014
217
42
259
2013
230
31
261
Investments in associates and joint ventures as at December 31, 2014, include goodwill of $49 million (December 31, 2013 - $20 million).
INVESTMENTS IN ASSOCIATES
B.
The following are the principal associates of the Corporation:
Boralex Inc.
Greenpac Holding LLC
PERCENTAGE OF EQUITY
OWNED (%)
34.23
59.7
BUSINESS RELATIONSHIP
PRINCIPAL ESTABLISHMENT
Note 1
Note 2
Kingsey Falls, Canada
Niagara Falls, United
States
1 Boralex Inc., is a Canadian public corporation and a major electricity producer whose core business is the development and operation of power stations that generate renewable
energy, with operations in Canada, the northeastern United States and France.
2 Greenpac Holding LLC is an American corporation that manufactures a light-weight linerboard made with 100% recycled fibres.
94
94
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The Corporation's financial information from its principal associates (100%) is as follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Current financial assets
Long-term assets
Long-term financial assets
Current liabilities
Current financial liabilities
Long-term liabilities
Long-term financial liabilities
Statements of earnings (loss)
Sales
Depreciation and amortization
Financing expense
Provision for (recovery of) income taxes
Net earnings (loss)
Other comprehensive income (loss)
Translation adjustment
Cash flow hedges
Available for sale asset
Total comprehensive income (loss)
Cash flow
Dividend received from associates
BORALEX INC.
GREENPAC HOLDING LLC
BORALEX INC.
GREENPAC HOLDING LLC
2014
2013
75
158
1
1,756
3
59
206
61
1,256
193
60
58
(1)
(11)
(2)
(28)
—
(30)
(41)
7
56
114
—
504
—
47
41
—
341
246
24
25
—
(4)
(2)
(10)
—
(12)
(16)
—
125
193
—
1,229
—
60
99
50
828
169
54
51
1
(4)
18
25
1
44
40
—
13
70
—
479
—
33
5
—
338
58
9
11
—
(18)
—
(10)
—
(10)
(28)
—
Investment in Boralex Inc. has a fair value of $169 million as at December 31, 2014 (December 31, 2013 - $142 million).
INVESTMENT IN JOINT VENTURES
C.
The following are the principal joint ventures of the Corporation and the Corporation's percentage of equity owned:
Cascades Sonoco Inc.
Cascades Conversion Inc.
Converdis Inc.
Maritime Paper Products Limited Partnership (MPPLP)
1 The joint ventures all produce specialty paper packaging products such as headers, rolls and wrappers.
2 MPPLP is a Canadian corporation converting containerboard.
PERCENTAGE EQUITY
OWNED (%)
BUSINESS RELATIONSHIP
PRINCIPAL ESTABLISHMENT
50
50
50
40
Note 1
Note 1
Note 1
Note 2
Birmingham and
Tacoma, United States
Kingsey Falls, Canada
Berthierville, Canada
Dartmouth, Nova
Scotia
95
95
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The Corporation's joint ventures information (100%) is as follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Long-term assets
Current liabilities
Current financial liabilities
Long-term liabilities
Long-term financial liabilities
Statement of earnings (loss)
Sales
Depreciation and amortization
Provision for income taxes
Net earnings (loss)
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income (loss)
Cash flow
Dividend received from joint ventures
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Long-term assets
Current liabilities
Current financial liabilities
Long-term liabilities
Statement of earnings
Sales
Depreciation and amortization
Provision for income taxes
Net earnings
Other comprehensive income
Translation adjustment
Total comprehensive income
Cash flow
Dividend received from joint ventures
CASCADES SONOCO INC.
CASCADES CONVERSION
INC.
CONVERDIS INC.
2014
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
4
25
12
6
2
3
—
104
2
3
7
3
10
3
1
14
26
3
1
2
—
62
1
2
6
—
6
3
—
6
5
2
—
1
—
23
—
—
1
—
1
—
—
24
34
—
19
6
4
86
2
—
(4)
—
(4)
—
2013
CASCADES SONOCO INC.
CASCADES CONVERSION
INC.
CONVERDIS INC.
4
20
12
4
3
3
97
1
3
7
1
8
6
2
17
21
5
—
2
62
1
2
6
—
6
3
—
5
5
2
—
1
24
—
—
1
—
1
—
There are no contingent liabilities relating to the Corporation's interest in the joint ventures, and no contingent liabilities of the ventures
themselves.
96
96
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements D. SUBSIDIARIES WITH NON-CONTROLLING INTEREST
The Corporation's information for its subsidiaries with significant non-controlling interest is as follows:
(in millions of Canadian dollars, unless otherwise noted)
Principal establishment
% of shares held by non-controlling interest
Net earnings (loss) attributable to non-controlling interest
Non-controlling interest accumulated at the end of the year
Subsidiaries financial information
Assets
Liabilities
Net earnings (loss)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
RENO DE MEDICI
S.p.A.
Milan, Italy
NORCAN
FLEXIBLE
PACKAGING
Mississauga,
Canada
42.39%
37.9%
5
83
508
313
6
37
(20)
(17)
(3)
(1)
10
12
(4)
—
—
—
2014
CASCADES
RECOVERY INC.
RENO DE MEDICI
S.p.A.
Toronto,
Canada
Milan, Italy
NORCAN
FLEXIBLE
PACKAGING
Mississauga,
Canada
2013
CASCADES
RECOVERY INC.
Toronto,
Canada
27%
2
28
132
39
6
16
(9)
(2)
42.39%
43.54%
3
85
559
360
3
37
(17)
(21)
(1)
2
18
13
(1)
1
—
(1)
27%
1
26
124
39
3
16
(5)
(16)
In 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby it had the option to buy
9.07% (100% of the shares held by Industria) of the shares of Reno de Medici (RdM) for €0.43 per share between March 1, 2011 and
December 31, 2012. Industria also had the option of requiring the Corporation to purchase its shares for €0.41 per share between January 1,
2013 and March 31, 2014. As the put option held by Industria became effective on January 1, 2013, the non-controlling interest has been
adjusted by 9.07% effective January 1, 2013, to 42.39%.
E. NON-SIGNIFICANT ASSOCIATES AND JOINT VENTURES
The carrying value of investments in associates and joint ventures that are not significant, for the Corporation is as follows:
(in millions of Canadian dollars)
Non-significant associates
Non-significant joint ventures
The shares of results of non-significant associates and joint ventures, for the Corporation are as follows:
(in millions of Canadian dollars)
Non-significant associates
Non-significant joint ventures
2014
13
8
21
2014
—
2
2
2013
13
7
20
2013
1
(2)
(1)
The Corporation received dividends of $2 million from these associates and joint ventures as at December 31, 2014 (December 31, 2013 -
$3 million).
F. CONTRIBUTION TO A JOINT VENTURE
On January 31, 2014, the Corporation concluded the creation of Maritime Paper Products Limited Partnership (MPPLP), a new joint venture
for converting corrugated board activities in the Atlantic provinces with Maritime Paper Products Limited (MPPL), announced on November 27,
2013. The creation of this joint venture will position our Containerboard Group to achieve future growth in the Atlantic provinces and to remain
at the forefront in this market, by offering an improved and more comprehensive range of products to its customers. Furthermore, the creation
of MPPLP aims to provide customers with better service through the combined strengths of our Containerboard Group and MPPL.
Our containerboard operations located in St. John’s, Newfoundland, and Moncton, New Brunswick, were integrated with those of MPPL on
February 1, 2014, and the Corporation received a 40% ownership in the joint venture. This transaction resulted in a gain of $5 million and
non interest-bearing notes receivable totaling $4 million to be received over a 7-year period.
97
97
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements Net asset contribution and investment in joint venture:
(in millions of Canadian dollar)
Book value of identifiable assets and liabilities contributed:
Accounts receivable and prepaid expenses
Inventories
Property, plant and equipment
Total assets
Accounts payable
Net assets contributed
Fair value of share in the joint venture
Notes receivable from MPPLP
Total consideration received
Total gain
Deferred gain on equity already owned
Net gain recorded on the transaction
Net investment on balance sheet:
Fair value of share in the joint venture
Deferred gain on share already owned
BUSINESS SEGMENT
CONTAINERBOARD
Joint venture created
Maritime Paper
Products Limited
Partnership (MPPLP)
(4)
(3)
(5)
(12)
3
(9)
14
4
18
9
(4)
5
14
(4)
10
98
98
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 9
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As at January 1, 2013
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2013
Opening net book amount
Additions
Disposals
Depreciation
Impairment charges
Other
Exchange differences
Closing net book amount
As at December 31, 2013
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2014
Opening net book amount
Additions
Disposals
Depreciation
Business disposal
Contribution to a joint venture
Assets of disposal group classified as held for sale
Impairment charges
Other
Exchange differences
Closing net book amount
As at December 31, 2014
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHER
TOTAL
5 and 24
5
8
5
5 and 24
104
—
104
104
3
—
—
(2)
—
4
109
111
2
109
109
1
—
—
(1)
—
—
(2)
1
(1)
107
110
3
107
681
273
408
408
8
—
(25)
(13)
10
11
399
721
322
399
399
7
(2)
(26)
(17)
(2)
(8)
(2)
16
3
368
681
313
368
2,764
1,757
1,007
1,007
51
(8)
(123)
—
68
37
1,032
2,831
1,799
1,032
1,032
17
(1)
(128)
(42)
(3)
(9)
(46)
141
6
967
2,554
1,587
967
78
57
21
21
11
—
(7)
—
—
—
25
84
59
25
25
16
—
(7)
(1)
—
(1)
—
1
—
33
93
60
33
225
106
119
119
84
(2)
(9)
(1)
(76)
4
119
215
96
119
119
141
(7)
(5)
(1)
—
(1)
—
(156)
8
98
195
97
98
3,852
2,193
1,659
1,659
157
(10)
(164)
(16)
2
56
1,684
3,962
2,278
1,684
1,684
182
(10)
(166)
(62)
(5)
(19)
(50)
3
16
1,573
3,633
2,060
1,573
Other property, plant and equipment includes buildings and machinery and equipment in the process of construction or installation with a book
value of $63 million (December 31, 2013 - $60 million) and deposits on purchases of equipment amounting to $7 million (December 31, 2013
- $10 million). The carrying value of finance-lease assets is $18 million.
In 2014, $1 million of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on funds borrowed in
2014 was 5.74%.
99
99
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 10
GOODWILL AND OTHER INTANGIBLE ASSETS
(in millions of Canadian dollars)
As at January 1, 2013
Cost
Accumulated amortization and
impairment
Net book amount
Year ended December 31, 2013
Opening net book amount
Additions
Impairment charges
Amortization
Exchange differences
Closing net book amount
As at December 31, 2013
Cost
Accumulated amortization and
impairment
Net book amount
Year ended December 31, 2014
Opening net book amount
Additions
Impairment charges
Amortization
Exchange differences
Closing net book amount
As at December 31, 2014
Cost
Accumulated amortization and
impairment
Net book amount
APPLICATION
SOFTWARE AND
ERP
NOTE
CUSTOMER
RELATIONSHIPS
AND CLIENT
LISTS
OTHER
INTANGIBLE
ASSETS WITH
FINITE USEFUL
LIFE
TOTAL
INTANGIBLE
ASSETS WITH
FINITE USEFUL
LIFE
OTHER
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
TOTAL
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
GOODWILL
24
5
81
19
62
62
15
—
(4)
—
73
97
24
73
73
6
—
(5)
—
74
102
28
74
179
53
126
126
—
(2)
(11)
1
114
180
66
114
114
—
(2)
(10)
—
102
170
68
102
41
29
12
12
—
—
(3)
—
9
41
32
9
9
—
—
(2)
—
7
35
28
7
301
101
200
200
15
(2)
(18)
1
196
318
122
196
196
6
(2)
(17)
—
183
307
124
183
329
—
329
329
—
(4)
—
1
326
330
4
326
326
—
—
—
2
328
332
4
328
7
1
6
6
—
—
—
1
7
8
1
7
7
—
—
—
—
7
8
1
7
336
1
335
335
—
(4)
—
2
333
338
5
333
333
—
—
—
2
335
340
5
335
NOTE 11
OTHER ASSETS
(in millions of Canadian dollars)
Notes receivable from business disposals
Other investments
Other assets
Deferred financing costs
Employee future benefits
Less: Current portion, included in accounts receivables
Total other assets
NOTE
2014
2013
16
13
7
48
2
20
90
(7)
83
18
10
42
4
44
118
(10)
108
In 2012, the Corporation granted a US$15 million ($15 million) bridge loan to Greenpac Holding LLC (Greenpac Project). The loan is included
in Other assets will mature no later than 2021 and bears interest ranging from 7.5% to 9.5% depending on the mill debt/OIBD ratio. Including
accrued interest, the bridge loan stands at $22 million as at December 31, 2014 (December 31, 2013 - $20 million). However, we expect the
loan to be repaid over the next 4 years through secured tax credits to be received by members of the project and operational cash flows. In
2014, the Corporation also recorded in Other assets $2 million worth of deferred revenue for the supervision of Greenpac (2013 - $6 million).
These costs are repayable to the Corporation by Greenpac Mill over an eight-year period.
100
100
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 12
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Accrued expenses
Trade and other payables
NOTE 13
PROVISIONS FOR CONTINGENCIES AND CHARGES
NOTE
28
2014
390
27
140
557
2013
450
25
115
590
(in millions of Canadian dollars)
As at January 1, 2013
Additional provision
Payments
Revaluation
Unwinding of discount
As at December 31, 2013
Additional provision
Payments
Revaluation
Business disposal
Unwinding of discount
Other
Exchange differences
As at December 31, 2014
Analysis of total provisions:
(in millions of Canadian dollars)
Non-current
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
NOTE
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
ONEROUS
CONTRACT
OTHER
TOTAL
PROVISIONS
8
—
—
—
—
8
—
—
1
(1)
—
—
—
8
13
1
(1)
—
—
13
1
—
—
—
—
—
—
14
8
2
(4)
—
—
6
1
—
—
—
—
(4)
—
3
2
4
(2)
—
—
4
10
(12)
—
—
—
4
(1)
5
5
3
—
(1)
2
—
4
4
(1)
—
—
—
—
—
7
5
1
(3)
—
1
4
4
(2)
—
—
1
—
—
7
2014
33
11
44
39
8
(11)
2
1
39
20
(15)
1
(1)
1
—
(1)
44
2013
37
2
39
ENVIRONMENTAL RESTORATION
The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of those
sites.
ENVIRONMENTAL COSTS
An environmental provision is recorded when the Corporation has an obligation caused by its ongoing or abandoned operations.
LEGAL CLAIMS
In the normal course of operations, the Corporation is party to various legal actions and contingencies related to contract disputes and labour
issues.
In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes,
environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending
as at December 31, 2014, cannot be predicted with certainty, it is Management's opinion that the outcome will not have a material adverse
effect on the Corporation's consolidated financial position, the results of its operations or its cash flows.
The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and Environment
Canada - Great Lakes Sustainability Fund in Toronto, regarding its potential responsibility for an environmental impact identified at its former
Thunder Bay facility ("Thunder Bay"). Both authorities have requested that the Corporation look into a site management plan relating to the
101
101
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements sediment quality adjacent to Thunder Bay's lagoon. Several meetings have been held during the year with the MOE and Environment Canada.
A study on the sediment quality and potential remediation options has commenced.
The Corporation is also in discussions with representatives of the MOE, regarding its potential responsibility for an environmental impact
identified at Thunder Bay. This facility was sold to Thunder Bay Fine Papers Inc. ("Fine Papers") in 2007. Fine Papers has since sold the
facility to Superior Fine Papers Inc. ("Superior"). The MOE has requested that the Corporation together with the former owner Fine Papers
and the current owner Superior submit a closure plan for the Waste Disposal Site and a decommissioning plan for the closure and long-term
monitoring for the Sewage Works (the "Plans"). Although, the Corporation recognizes that where as a result of past events, there may be an
outflow of resources embodying future economic benefits in settlement of a possible obligation, it is not possible at this time to estimate the
Corporation's obligation, since Superior has not submitted all of the Plans and related costs to allow the Corporation to perform an evaluation
nor does the Corporation have access to the site. Moreover, the Corporation is unable to ascertain the value of the assets remaining on its
former site which may be available to fund this potential obligation. The Corporation is pursuing all available legal remedies to resolve the
situation. In any event, Management does not consider the Corporation's potential obligation to be significant.
The Corporation has recorded an environmental reserve to address its estimated exposure for these matters.
NOTE 14
LONG-TERM DEBT
(in millions of Canadian dollars)
Revolving credit facility, weighted average interest rate of 2.63% as at December 31, 2014, consists of $103
million; US$50 million and €123 million (December 31, 2013 - $291 million; US$10 million and €125
million)
7.75% Unsecured senior notes of $200 million repurchased in 2014
7.75% Unsecured senior notes of US$500 million repurchased in 2014
7.875% Unsecured senior notes of US$250 million
5.50% Unsecured senior notes of $250 million
5.50% Unsecured senior notes of US$550 million
Other debts of subsidiaries
Other debts without recourse to the Corporation
Less: Unamortized financing costs
Total long-term debt
Less:
Current portion of debts of subsidiaries
Current portion of debts without recourse to the Corporation
MATURITY
2014
2013
2016
2016
2017
2020
2021
2022
332
—
—
287
250
638
31
73
1,611
15
1,596
10
30
40
1,556
484
199
527
263
—
—
39
80
1,592
13
1,579
15
24
39
1,540
a. On June 19, 2014, the Corporation issued US$550 million aggregate principal amount of 5.50% senior notes due in 2022 and $250 million
aggregate principal amount of 5.50% due in 2021. The Corporation used the proceeds from this offering of notes to fund the purchase of
the Corporation's unsecured senior notes maturing in 2016 and 2017. The Corporation used part of the proceeds of the offering to pay fees
and expenses in connection with the offering and the tender offer totaling $13 million. As well, the Corporation purchased for a total
consideration of US$521 million ($563 million) and $208 million, including premiums of US$21 million ($23 million) and $8 million, a total of
US$500 million aggregate principal amount of 7.75% senior notes due in 2017 and $200 million aggregate principal amount of 7.75 % senior
notes due in 2016.
Issuance proceeds were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering and tender offer fees
Refinanced debt repurchase
Premium paid on refinanced debt
Decrease of credit facility
102
102
2014
846
(13)
(740)
(31)
(62)
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements b. In 2013, the Corporation repurchased US$4 million of its 7.25% unsecured senior notes for an amount of US$4 million ($4 million) and US
$6 million of its 6.75% unsecured senior notes for an amount of US$6 million ($6 million). No gain or loss resulted from these transactions.
c. As at December 31, 2014, accounts receivable and inventories totaling approximately $627 million (December 31, 2013 - $655 million) as
well as property, plant and equipment totaling approximately $249 million (December 31, 2013 - $261 million) were pledged as collateral for
the Corporation's revolving credit facility.
d. The Corporation has finance leases for various items of property, plant and equipment. Renewals and purchase options are specific to the
entity that holds the lease. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:
(in millions of Canadian dollars)
Within one year
Later than 1 year but no later than 5 years
More than 5 years
Total minimum lease payments
Less: amounts representing finance charges
Present value of minimum lease payments
NOTE 15
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Other
Less: Current portion, included in Trade and other payables
Total other liabilities
2014
2013
MINIMUM PAYMENTS
PRESENT VALUE OF
PAYMENTS
MINIMUM PAYMENTS
PRESENT VALUE OF
PAYMENTS
6
12
8
26
6
20
5
9
6
20
—
20
NOTE
16
6
10
9
25
7
18
2014
188
5
193
(2)
191
5
7
6
18
—
18
2013
202
11
213
(1)
212
103
103
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 16
EMPLOYEE FUTURE BENEFITS
The Corporation operates various post-employment plans, including both defined benefit and defined contribution pension plans and post-
employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. The table below outlines where
the Corporation’s post-employment amounts and activity are included in the financial statements.
(in millions of Canadian dollars)
Balance sheet obligations for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
Net liability in the balance sheet
Allocated as follow:
Short-term
Long-term
Net liability on balance sheet
Income statement charge
Defined pension benefits
Defined contribution benefits
Post-employment benefits other than defined benefit pension plans
Included in discontinued operations
Remeasurements for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
NOTE
16(a)
16(b)
16(a)
16(b)
2014
2013
59
109
168
—
168
168
8
19
6
(2)
31
30
9
39
44
114
158
(6)
164
158
11
18
6
11
46
(89)
(8)
(97)
A. DEFINED BENEFIT PENSION PLANS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (RRSP) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually
contributory and are based on the number of years of service and, in most cases the average salaries or compensation at the end of a career.
Retirement benefits are not partially adjusted based on inflation.
The majority of benefit payments are payable from a trustee administered funds; however, for the unfunded plans, the Corporation meets the
benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practice in each country. Responsibility
for governance of the plans - overseeing all aspects of the plans including investment decisions and contribution schedules - lies with the
Corporation. The Corporation has established Investment Committees to assist in the management of the plans and has also appointed
experienced, independent professional experts such as investments managers, investment consultants, actuaries and custodians.
104
104
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The movement in the net defined benefit obligation and fair value of plan assets of pension plans over the year is as follows:
(in millions of Canadian dollars)
As at January 1, 2013
Current service cost
Interest expense (income)
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest expense (income)
Loss from change in demographic assumptions
Gain from change in financial assumptions
Experience gains
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2013
Current service cost
Interest expense (income)
Plan changes
Business closures
Other
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest expense (income)
Loss from change in demographic assumptions
Loss from change in financial assumptions
Experience losses
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on other comprehensive income
Exchange differences
Business disposal
Included in assets of disposal group classified as held for sale
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2014
PRESENT VALUE
OF OBLIGATION
FAIR VALUE OF
PLAN ASSETS
723
12
29
41
—
17
(42)
(1)
(26)
3
—
3
(90)
654
8
27
1
(7)
7
36
—
2
66
10
—
78
—
(134)
(51)
—
2
(73)
512
(598)
—
(22)
(22)
(63)
—
—
—
(63)
(1)
(27)
(3)
90
(624)
—
(24)
—
—
(7)
(31)
(37)
—
—
—
—
(37)
(1)
131
47
(9)
(2)
73
(453)
IMPACT OF
MINIMUM
FUNDING
REQUIREMENT
(ASSET CEILING)
13
TOTAL
125
TOTAL
138
12
7
19
(63)
17
(42)
(1)
(89)
2
(27)
—
—
30
8
3
1
(7)
—
5
(37)
2
66
10
—
41
(1)
(3)
(4)
(9)
—
—
59
—
1
1
—
—
—
—
—
—
—
—
—
14
—
—
—
—
—
—
—
—
—
—
(11)
(11)
—
(3)
—
—
—
—
—
12
8
20
(63)
17
(42)
(1)
(89)
2
(27)
—
—
44
8
3
1
(7)
—
5
(37)
2
66
10
(11)
30
(1)
(6)
(4)
(9)
—
—
59
105
105
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The defined benefit obligation and plan assets are composed by country and by sector as follows:
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Present value of unfunded obligations
Net liability on balance sheet
(in million of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Present value of unfunded obligations
Net liability on balance sheet
CANADA
UNITED STATES
EUROPE
443
448
(5)
36
31
9
5
4
—
4
—
—
—
24
24
CONTAINERBOARD
398
409
(11)
8
(3)
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
19
—
—
24
24
13
6
2
8
TISSUE PAPERS
CORPORATE
34
29
5
2
7
1
2
(1)
24
23
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Net liability on balance sheet
CANADA
UNITED STATES
EUROPE
594
619
(25)
14
33
22
7
5
2
—
—
2
—
—
—
—
20
20
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Net liability on balance sheet
The significant actuarial assumptions are as follows:
CONTAINER-
BOARD
386
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
186
424
(38)
11
7
(20)
—
—
—
20
20
173
13
3
2
18
2014
TISSUE PAPERS
CORPORATE
28
25
3
—
2
5
1
2
(1)
—
22
21
2014
TOTAL
452
453
(1)
60
59
2014
TOTAL
452
453
(1)
60
59
2013
TOTAL
601
624
(23)
14
53
44
2013
TOTAL
601
624
(23)
14
53
44
2013
Discount rate
Salary growth rate
Inflation rate
CANADA
UNITED STATES
EUROPE
CANADA
UNITED STATES
EUROPE
3.75%
3.62%
1.9%
4.75%
Between 2.5%
and 3%
2.5%
N/A
N/A
—% Between 1.5%
and 3%
1.75%
2.5%
4.5%
N/A
N/A
3.25%
—%
1.75%
106
106
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each
territory. For Canadian pension plans which represent 95% of all pension plans, these assumptions translate into an average life expectancy
in years for a pensioner retiring at age 65:
Retiring at the end of the year
Male
Female
Retiring 20 years after the end of the reporting year
Male
Female
2014
21.5
24
22.6
25
2013
20.9
23.1
22.6
24.2
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an
assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
IMPACT ON DEFINED BENEFIT OBLIGATION
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
(3.0)%
0.4%
3.1%
(0.3)%
Discount rate
Salary growth rate
Life expectancy
Plan assets, which are funding the Corporation’s defined pension plans, are comprised as follows:
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Money market funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Other
Insured annuities
Derivatives contract, net
LEVEL 1
LEVEL 2
LEVEL 3
10
62
76
16
—
—
—
—
—
6
170
—
60
—
—
13
2
25
115
68
—
283
—
—
—
—
—
—
—
—
—
—
—
INCREASE BY 1 YEAR IN ASSUMPTION
2.8%
2014
%
2.3 %
TOTAL
10
122
26.9 %
76
16
92
13
2
25
115
155
68
6
74
453
20.3 %
34.2 %
16.3 %
107
107
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements (in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Money market funds
Canadian bond mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Derivatives contract, net
LEVEL 1
LEVEL 2
LEVEL 3
28
115
113
13
—
—
—
—
—
—
6
275
1
97
—
—
11
11
2
49
176
2
—
349
—
—
—
—
—
—
—
—
—
—
—
—
2013
%
4.6 %
34.0 %
20.2 %
40.2 %
1.0 %
TOTAL
29
212
212
113
13
126
11
11
2
49
176
2
251
6
6
624
The plan assets include shares of the Corporation for an amount of less than $1 million. Those shares have been bought by one of the asset
managers. Annual benefit annuities of an approximate value of $68 million are pledged by insurance contracts.
B. POST EMPLOYMENT BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS
The Corporation also offers to its employees some post-employment benefit plans, such as retirement allowance, group life insurance and
medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon
retirement are being phased out and are no longer offered to the majority of the new retirees, and the retirement allowance is not offered to
the majority of employees hired after 2002.
The amounts recognized in the balance sheet composed by country and by sector are determined as follows:
(in millions of Canadian dollars)
Present value of unfunded obligations
Liability on balance sheet
(in millions of Canadian dollars)
Present value of unfunded obligations
Liability on balance sheet
(in millions of Canadian dollars)
Present value of unfunded obligations
Liability on balance sheet
CANADA
UNITED STATES
EUROPE
81
81
4
4
24
24
CONTAINERBOARD
48
48
BOXBOARD
EUROPE
24
24
SPECIALTY
PRODUCTS
6
6
TISSUE PAPERS
CORPORATE
13
13
18
18
CANADA
UNITED STATES
EUROPE
85
85
3
3
26
26
(in millions of Canadian dollars)
CONTAINERBOARD
Present value of unfunded obligations
Liability on balance sheet
108
46
46
.
108
BOXBOARD
EUROPE
26
26
SPECIALTY
PRODUCTS
17
17
TISSUE PAPERS
CORPORATE
12
12
13
13
2014
TOTAL
109
109
2014
TOTAL
109
109
2013
TOTAL
114
114
2013
TOTAL
114
114
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The movement in the net defined benefit obligation for post-employment benefits over the year is as follows:
(in millions of Canadian dollars)
As at January 1, 2013
Current service cost
Interest expense
Post-employment variation
Plan changes
Impact on profit or loss
Remeasurements
Loss from change in demographic assumptions
Gain from change in financial assumptions
Experience losses
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2013
Current service cost
Interest expense
Plan changes
Business acquisitions, disposals and closures
Impact on profit or loss
Remeasurements
Loss from change in financial assumptions
Impact of remeasurements on other comprehensive income
Business disposal
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2014
PRESENT VALUE OF
OBLIGATION FAIR VALUE OF PLAN ASSET
—
120
3
4
(1)
1
7
1
(11)
2
(8)
3
—
(8)
114
2
5
1
(2)
6
9
9
(9)
—
(11)
109
—
—
—
—
—
—
—
—
—
—
(8)
8
—
—
—
—
—
—
—
—
—
(11)
11
—
TOTAL
120
3
4
(1)
1
7
1
(11)
2
(8)
3
(8)
—
114
2
5
1
(2)
6
9
9
(9)
(11)
—
109
The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment
benefits are similar to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term increase
in healthcare costs of 4.50% a year (2013 - 4.75%).
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an
assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
Discount rate
Salary growth rate
Health care cost increase
Life expectancy
IMPACT ON OBLIGATION FOR POST-EMPLOYMENT BENEFITS
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
1.0%
(2.4)%
0.6 %
2.3 %
2.6 %
(0.6)%
(2.3)%
INCREASE BY 1 YEAR IN ASSUMPTION
1.3 %
C. RISKS AND OTHER CONSIDERATIONS RELATIVE TO POST-EMPLOYMENT BENEFITS
Through its defined benefit plans, the Corporation is exposed to a number of risks, the most significant of which are detailed below.
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this
will create an experience loss. Both the Canada and US plans hold a proportion of equities, which are expected to outperform corporate bonds
in the long-term while contributing volatility and risk in the short-term.
109
109
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements For the Canadian pension plans, which represent 99% of funded pension plans, the Corporation intends to reduce the level of investment
risk by investing more in assets that better match the liabilities when the financial situation of the plans improves and/or the rate of return on
bonds used for solvency valuations will increase.
The first step of this process was completed in 2013 with the sale of a number of equity holdings and the purchase of a mixture of government
and corporate bonds for smaller pension plans ($50 million or less); for larger pension plans, it has been done through future contracts. The
government bonds represent investments in Canadian government securities only. The corporate bonds are global securities with an emphasis
on Canada. As at December 31, 2014, 58% of the plan's assets are invested in bonds, in kind or through futures. The second step began in
2014 as we purchased $66 millions in annuities from a life insurance company for some pensioners.
However, the Corporation believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of
continuing equity investment is an appropriate element of the Corporation’s long-term strategy to manage the plans efficiently. Plan assets
are diversified, so the failure of an individual stock would not have a big impact on the plan assets taken as a whole. The pension plans do
not face a significant currency risk.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’
bond holdings, particularly for plans in a good financial position that have a greater proportion of bonds.
Inflation risk
The benefits paid are not indexed. Only the future benefits for active members are based on salaries. Therefore, this risk is not significant.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the member's lifetime, so increases in life expectancy will result in an increase
in the plans’ liabilities.
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated using
the projected unit credit method at the end of the reporting period) has been applied as for calculating the liability recognized in the statement
of financial position.
As at December 31, 2014, the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $1 million (a
surplus of $23 million as at December 31, 2013). The Corporation will make special payments of $1 million for past service to fund the Canadian
pension plan deficit over ten years. As well, in 2015, the Corporation will make one-time contributions totaling $7 million to pension plans of
units closed or sold in 2014. Current agreed expected service contributions amount to $6 million and will be made in the normal course. As
for the cash flow requirement, these pension plans are expected to require a net contribution of approximately $14 million in 2015.
The weighted average duration of the defined benefit obligation is 12 years (2013 - 13 years).
Expected maturity analysis of undiscounted pension and other post-employment benefits:
(in millions of Canadian dollars)
Pension benefits
Post-employment benefits other than defined benefit pension plans
As at December 31, 2014
LESS THAN A
YEAR
49
BETWEEN 1-2
YEARS
30
BETWEEN 2-5
YEARS
95
9
58
7
37
26
121
OVER 5 YEARS
1,039
142
1,181
TOTAL
1,213
184
1,397
These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority
of benefit payments are payable from trustee administered funds. The difference will come from future investment returns expected on plan
assets and future contributions that will be made by the Corporation for services rendered after December 31, 2014.
110
110
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 17
INCOME TAXES
a. The provision for (recovery of) income taxes is as follows:
(in millions of Canadian dollars)
Current tax
Deferred tax
2014
16
—
16
2013
(3)
22
19
b. The provision for (recovery of) income taxes based on the effective income tax rate differs from the provision for (recovery of) income
taxes based on the combined basic rate for the following reasons:
(in millions of Canadian dollars)
Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment of provision for (recovery of) income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Reassessment
Permanent differences - others
Change in unrecognized temporary differences
Provision for income taxes
2014
(12)
1
3
22
2
28
16
Weighted average income tax rate for the year ended December 31, 2014, was 26.5% (2013 - 28.9%).
c. The provision for (recovery of) income taxes relating to components of other comprehensive income is as follows:
(in millions of Canadian dollars)
Foreign currency translation related to hedging activities
Cash flow hedge
Actuarial gain (loss) on post-employment benefit obligations
2014
(6)
—
(11)
(17)
2013
17
5
1
(2)
(2)
2
19
2013
(4)
1
26
23
The analysis of deferred tax assets and deferred tax liabilities, without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
(in millions of Canadian dollars)
Deferred income tax assets:
Deferred income tax assets to be recovered after more than 12 months
Deferred income tax assets to be recovered within 12 months
Deferred income tax liabilities:
Deferred income tax liabilities to be used after more than 12 months
The movement of the deferred income tax account is as follows:
(in millions of Canadian dollars)
As at January 1
Through statement of earnings (loss)
Variance of income tax credit, net of related income tax
Through statement of comprehensive income (loss)
Included in discontinued operations
Exchange differences
As at December 31
2014
2013
328
—
328
281
47
333
7
340
331
9
2014
2013
9
—
—
17
29
(8)
47
48
(22)
3
(23)
7
(4)
9
111
111
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
DEFERRED INCOME TAX ASSET
(in millions of Canadian dollars)
As at January 1, 2013
Through statement of earnings (loss)
Variance of income tax credit
Through statement of comprehensive income
(loss)
As at December 31, 2013
Through statement of earnings (loss)
Through statement of comprehensive income
(loss)
Included in discontinued operations
Exchange differences
As at December 31, 2014
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As at January 1, 2013
Through statement of earnings (loss)
Through statement of comprehensive loss
Included in discontinued operations
Exchange differences
As at December 31, 2013
Through statement of earnings (loss)
Through statement of comprehensive loss
Included in discontinued operations
Exchange differences
As at December 31, 2014
RECOGNIZED TAX
BENEFIT ARISING
FROM INCOME
TAX LOSSES
EMPLOYEE
FUTURE
BENEFITS
EXPENSE ON
RESEARCH
UNUSED TAX
CREDITS
FINANCIAL
INSTRUMENTS
OTHERS
141
33
—
—
174
(17)
—
5
1
163
59
(1)
—
(26)
32
(11)
11
2
—
34
56
7
—
—
63
7
—
—
—
70
49
2
3
—
54
(15)
—
—
—
39
16
(8)
—
(1)
7
1
—
—
—
8
14
(4)
—
—
10
12
—
(8)
—
14
PROPERTY,
PLANT AND
EQUIPMENT
FOREIGN
EXCHANGE GAIN
(LOSS) ON LONG-
TERM DEBT
INTANGIBLE
ASSETS
INVESTMENTS
OTHERS
161
8
—
(7)
4
166
(12)
—
(25)
5
134
59
(12)
(4)
—
—
43
(20)
(6)
—
—
17
44
8
—
—
—
52
—
—
(1)
—
51
14
40
—
—
—
54
14
—
(4)
4
68
9
7
—
—
—
16
(5)
—
—
—
11
TOTAL
335
29
3
(27)
340
(23)
11
(1)
1
328
TOTAL
287
51
(4)
(7)
4
331
(23)
(6)
(30)
9
281
When taking into consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax asset of $47 million is presented
on the balance sheet as $185 million of deferred income tax asset amounts and $138 million of deferred income tax liabilities.
112
112
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The Corporation has accumulated losses for income tax purposes amounting to approximately $798 million which may be carried forward to
reduce taxable income in future years. The future tax benefit of $163 million resulting from the deferral of these losses has been recognized
in the accounts as a deferred income tax asset. Deferred income tax assets are recognized for tax loss carry-forward to the extent that the
realization of the related tax benefits through future taxable profits is probable. Income tax losses as at December 31, 2014 are detailed as
follows:
(in millions of Canadian dollars)
Canada
United States
Europe
NOTE 18
CAPITAL STOCK
UNRECOGNIZED TAX
LOSSES
RECOGNIZED TAX LOSSES
TOTAL TAX LOSSES
MATURITY
—
—
—
—
—
—
—
—
—
—
—
—
—
162
162
6
8
14
3
51
78
128
85
137
2
2
2
2
118
636
6
8
14
3
51
78
128
85
137
2
2
2
2
280
798
2015
2026
2027
2029
2030
2031
2032
2033
2034
2029
2031
2032
2033
Indefinitely
A. CAPITAL MANAGEMENT
Capital is defined as long-term debt, bank loans and advances net of cash and cash equivalents and Shareholders' equity which includes
capital stock.
(in millions of Canadian dollars)
Cash and cash equivalents
Bank loans and advances
Long-term debt, including current portion
Total equity
Total capital
2014
(29)
46
1,596
1,613
1,003
2,616
2013
(23)
56
1,579
1,612
1,194
2,806
The Corporation's objectives when managing capital are:
•
•
•
•
to safeguard the Corporation's ability to continue as a going concern in order to provide returns to Shareholders;
to maintain an optimal capital structure and reduce the cost of capital;
to make proper capital investments that are significant to ensure the Corporation remains competitive; and
to redeem common shares based on an annual redemption program.
The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it
in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Corporation may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares and
acquire or sell assets to improve its financial performance and flexibility.
The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance indicators.
Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are calculated on an adjusted
consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization of 65% and a minimum interest
coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional debt. Funded debt
is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of funded debt of another
113
113
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements person but excluding other long-term liabilities, trade accounts payable, obligations under finance leases and other accrued obligations (2014
- $1,561 million; 2013 - $1,538 million). The capitalization ratio is calculated as "Shareholders' equity" as shown in the consolidated balance
sheet plus the funded debt. Shareholders' equity is adjusted to add back the effect of IFRS adjustments as at December 31, 2010 in the
amount of $208 million. The interest coverage ratio is defined as OIBD to interest expense. The OIBD is defined as net earnings of the last
four quarters plus interest expense, income taxes, amortization and depreciation, expense for stock options and dividends received from a
person who is not a credit party (2014 - $291 million; 2013 - $293 million). Excluded from net earnings are share of results of equity investments
and gains or losses from non-recurring items. Interest expense is calculated as interest and financial charges determined in accordance with
IFRS plus any capitalized interest but excluding the amortization of deferred financing costs, up-front and financing costs and also unrealized
gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of any long-term debt denominated
in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as defined in the Senior notes indenture
dated December 3, 2009.
As at December 31, 2014, the funded debt-to-capitalization ratio stood at 58.62% and the interest coverage ratio was 3.22x. The Corporation
is in compliance with the ratio requirements of its lenders. If cash is available, the Corporation will use it to reduce its revolving credit facility
utilization.
The Corporation's credit facility is subject to terms and conditions for loans of this nature, including limits on incurring additional indebtedness
and granting liens or selling assets without the consent of the lenders.
The unsecured senior notes are subject to customary covenants restricting the Corporation's ability to, among other things, incur additional
debt, pay dividends and make other restricted payments as defined in the Indenture dated December 3, 2009.
The Corporation normally invests between $100 million and $200 million yearly in purchases of property, plant and equipment. These amounts
are carefully reviewed during the course of the year in relation to operating results and strategic actions approved by the Board of Directors.
These investments, combined with annual maintenance, enhance the stability of the Corporation's business units and improve cost
competitiveness through new technology and improved process procedures.
The Corporation has an annual share redemption program in place to redeem its outstanding common shares when the market price is judged
appropriate by Management. In addition to limitations on the normal course issuer bid, the Corporation's ability to redeem common shares is
limited by its senior notes indenture.
ISSUED AND OUTSTANDING
B.
The authorized capital stock of the Corporation consists of an unlimited number of common shares, without nominal value, and an unlimited
number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated as
follows:
2014
2013
NOTE
NUMBER OF SHARES
IN MILLIONS OF CANADIAN
DOLLARS
NUMBER OF SHARES
IN MILLIONS OF CANADIAN
DOLLARS
Balance - beginning of year
Shares issued on exercise of stock options
Redemption of common shares
Balance - end of year
18(d)
18(c)
93,887,849
376,025
(77,400)
94,186,474
482
1
—
483
93,882,445
75,304
(69,900)
93,887,849
482
—
—
482
C. REDEMPTION OF COMMON SHARES
In 2014, in the normal course of business, the Corporation renewed its redemption program of a maximum of 1,502,206 common shares with
the Toronto Stock Exchange, said shares representing approximately 1,6% of issued and outstanding common shares. The redemption
authorization is valid from March 17, 2014 to March 16, 2015. In 2014, the Corporation redeemed 77,400 common shares under this program
for a consideration of approximately nil (2013 - nil).
D. SHARE ISSUANCE
The Corporation issued 376,025 shares upon the exercise of options for an amount of $ 1 million (2013 - nil for 75,304 shares issued).
114
114
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements E. EARNINGS (LOSS) PER SHARE
The basic and diluted net earnings (loss) per common share are calculated as follows:
Net earnings (loss) available to common shareholders (in millions of Canadian dollars)
Weighted average basic number of common shares outstanding (in millions)
Dilution effect of stock options (in millions)
Adjusted weighted average number of common shares (in millions)
Basic net earnings (loss) per common share (in Canadian dollars)
Diluted net earnings (loss) per common share (in Canadian dollars)
2014
(147)
94
—
94
(1.57) $
(1.57) $
2013
11
93.9
0.8
94.7
0.11
0.11
$
$
In calculating diluted net earnings (loss) per share for 2014 and 2013, stock options of 6,432,328 and 3,058,072 respectively were excluded
due to their antidilutive effect. As of March 12, 2015, the Corporation had not redeemed any shares since the beginning of the financial year.
F. DETAILS OF DIVIDENDS DECLARED PER SHARE ARE AS FOLLOWS
Dividends declared per share
NOTE 19
STOCK-BASED COMPENSATION
$
2014
0.16 $
2013
0.16
a. Under the terms of a share option plan adopted on December 15, 1998, and amended on March 15, 2013, and approved by Shareholders
on May 8, 2013, for officers and key employees of the Corporation, a remaining balance of 2,460,973 common shares has been specifically
reserved for issuance. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price of
an option shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of the
share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options are 25%
of the number of shares under option within 12 months after the first anniversary date of grant, and up to an additional 25% every 12 months
after the second, third and fourth anniversaries of grant date. Options cannot be exercised if the market value of the share at exercise date
is lower than the book value at the date of grant. Options exercised are settled in shares. The stock-based compensation cost related to
these options amounted to $1 million (2013 - $1 million).
Changes in the number of options outstanding as at December 31, 2014 and 2013 are as follows:
Beginning of year
Granted
Exercised
Expired
Forfeited
End of year
Options exercisable - end of year
2014
2013
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
6,656,423
546,155
(376,025)
(383,424)
(10,801)
6,432,328
4,728,990
6.22
6.10
4.56
12.11
5.42
5.96
6.18
6,534,700
560,391
(75,304)
(331,301)
(32,063)
6,656,423
4,727,343
6.54
5.18
2.39
11.69
4.46
6.22
6.65
The weighted-average share price at the time of exercise of the options was $6.35 (2013 - $4.97).
115
115
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The following options were outstanding as at December 31, 2014:
YEAR GRANTED
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
EXPIRATION DATE
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
2005
2006
2007
2008
2009
2009
2010
2011
2012
2013
2014
219,333
260,714
285,680
431,443
321,175
1,307,412
650,517
716,074
1,141,831
555,373
542,776
6,432,328
12.73
11.49
11.83
7.81
2.28
3.92
6.43
6.26
4.46
5.18
6.10
5.96
219,333
260,714
285,680
431,443
321,175
1,307,412
650,517
538,674
575,207
138,835
—
4,728,990
12.73
11.49
11.83
7.81
2.28
3.92
6.43
6.26
4.46
5.18
—
6.18
2015
2015-2016
2015-2017
2015-2018
2019
2019
2015-2020
2015-2021
2015-2022
2023
2024
FAIR VALUE OF THE SHARE OPTIONS GRANTED
Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the
past five years. The following weighted-average assumptions were used to estimate the fair value of $2.52 (2013 - $1.75), as at the date of
grant, of each option issued to employees:
Grant date share price
Exercise price
Risk-free interest rate
Expected dividend yield
Expected life of options
Expected volatility
$
$
$
$
2014
6.65
6.10
1.79%
2.41%
6 years
45%
2013
5.15
5.18
1.75%
3.11%
6 years
47%
b. The Corporation offers its Canadian employees a share purchase plan for its common shares. Employees can voluntarily contribute up to
a maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute to the plan for 25% of the employee's
contribution.
The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2014, the Corporation's
contribution to the plan amounted to $1 million (2013 - $1 million).
c. The Corporation has a Deferred Share Unit Plan for the benefit of its external directors, allowing them to receive all or a portion of their
annual compensation in the form of Deferred Share Units (DSUs). A DSU is a notional unit equivalent in value to the Corporation's common
share. Upon resignation from the Board of Directors, participants are entitled to receive the payment of their cumulated DSUs in the form
of cash based on the average price of the Corporation's common shares as traded on the open market during the five days before the date
of the participant's resignation.
The DSU expense and the related liability are recorded at the grant date. The liability is adjusted periodically to reflect any variation in the
market value of the common shares. As at December 31, 2014, the Corporation had a total of 271,581 DSUs outstanding (2013 - 227,415
DSUs), representing a long-term liability of $2 million (2013 - $2 million).
d. In 2013, the Corporation put in place a Performance Share Unit (PSU) Plan for the benefit of officers and key employees, allowing them
to receive a portion of their annual compensation in the form of PSUs. A PSU is a notional unit equivalent in value to the Corporation's
common share. Periodically, the number of PSUs forming part of the award shall be adjusted depending upon the three-year average return
on capital employed of the Corporation (ROCE). Such adjusted number shall be obtained by multiplying the number of PSUs forming part
of the award by the applicable multiplier based on the ROCE level. Participants are entitled to receive the payment of their PSUs in the
form of cash based on the average price of the Corporation's common shares as traded on the open market during the five days before
the vesting date.
116
116
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The PSUs vest over a period of two years starting on the award date. The expense and the related liability are recorded during the vesting
period. The liability is adjusted periodically to reflect any variation in the market value of the common shares, the expected average ROCE
and the passage of time. As at December 31, 2014, the Corporation had a total of 1,098,149 PSUs outstanding (2013 - 560,391 PSUs),
representing a liability of $2 million (2013 - nil).
NOTE 20
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions of Canadian dollars)
Foreign currency translation, net of hedging activities and related income tax of $6 million (December 31, 2013 - nil)
Unrealized loss arising from foreign exchange forward contracts designated as cash flow hedges, net of related
income taxes of nil (December 31, 2013 - $1 million)
Unrealized loss arising from interest rate swap agreements designated as cash flow hedges, net of related income
taxes of $14 million (December 31, 2013 - $8 million)
Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related
income taxes of $5 million (December 31, 2013 - $5 million)
Unrealized loss on available-for-sale financial assets, net of related income taxes of nil (December 31, 2013 - nil)
NOTE 21
COST OF SALES BY NATURE
(in millions of Canadian dollars)
Raw material
Wages and employee benefits expenses
Energy
Delivery
Depreciation and amortization
Other
Total cost of sales
SELLING AND ADMINISTRATIVE EXPENSES BY NATURE
(in millions of Canadian dollars)
Wages and employee benefits expenses
Information technology
Publicity and marketing
Other
Total selling and administrative expenses
NOTE 22
EMPLOYEE BENEFITS EXPENSES
(in millions of Canadian dollars)
Wages and employee benefits expenses
Share options granted to directors and employees
Pension costs - defined benefit plans
Pension costs - defined contribution benefits
Post-employment benefits other than defined benefit pension plans
NOTE
21
19(a)
16
16
16
2014
(25)
(2)
(20)
(14)
(1)
(62)
2014
1,405
600
270
255
174
359
3,063
2014
233
20
11
70
334
2014
833
1
8
19
6
867
2013
(29)
(4)
(13)
(13)
(1)
(60)
2013
1,268
566
261
240
167
361
2,863
2013
231
17
10
77
335
2013
797
1
11
18
6
833
117
117
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements KEY MANAGEMENT COMPENSATION
Key management includes the members of the Board of Directors, Presidents and Vice Presidents of the Corporation (same as disclosed
in annual information form in section 8.3). The compensation paid or payable to key management for their services is shown below:
(in millions of Canadian dollars)
Salaries and other short-term benefits
Post-employment benefits
Share-based payments
NOTE 23
LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS
(in millions of Canadian dollars)
Employment contracts
Gain on disposal of property, plant and equipment
Class action settlement
Gain on joint-venture contribution
2014
9
1
4
14
2013
9
1
1
11
NOTE
2014
2013
8(f)
—
—
5
(5)
—
5
(2)
—
—
3
2014
In the fourth quarter of 2014, the Corporation has settled a class action lawsuit that was filed against it and other North American manufacturers
of containerboard. Under the terms of the settlement agreement, the Corporation has agreed to pay US $4.8 million into a settlement fund in
return for the release of all claims of the alleged class without any admission of wrong doing on the part of the Corporation.
On January 31, the Corporation concluded the creation of a new joint venture for converting corrugated board activities in the Atlantic provinces
with Maritime Paper Products Limited (MPPL).This transaction resulted in a gain of $5 million.
2013
As part of the transition process related to the appointment of a new President and CEO, the Corporation entered into employment contracts
with the new President and CEO and its Presidents of the Containerboard, Specialty Products and Tissue Papers business segments. The
fair value of the post-employment benefit obligation related to these employment contracts was evaluated at $5 million and an equivalent
charge has been recorded.
The Containerboard Group sold a piece of land located at its New York City, USA, containerboard plant site and recorded a gain of $2 million
on the disposal.
NOTE 24
IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS
A.
IMPAIRMENT CHARGES (REVERSAL) ON PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS WITH FINITE USEFUL
LIFE AND OTHER ASSETS
The Corporation recorded net impairment charges totaling $21 million in 2014 and a net impairment reversal of $7 million in 2013. The
recoverable amount of CGUs was determined using a fair value less cost of disposal sell model based on the income approach, unless
otherwise indicated. Level 2 inputs are used to measure fair value. Impairments are detailed as follows:
(in millions of Canadian dollars)
Property, plant & equipment
Spare parts
Intangible assets with finite useful life and other assets
Total
118
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
TOTAL
2014
7
—
—
7
8
3
3
14
15
3
3
21
—
—
—
—
15
3
3
21
—
—
—
—
118
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements PACKAGING PRODUCTS
2013
(in millions of Canadian dollars)
Property, plant & equipment
Intangible assets with finite useful life and other assets
Total
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
TOTAL
—
1
1
7
—
7
—
2
2
7
3
10
(17)
—
(17)
(10)
3
(7)
2014
In the fourth quarter, the Boxboard Europe Group reviewed the recoverable amount of its Iberica, Spain, recycled boxboard manufacturing
mills, and recorded impairment charges on property, plant and equipment totaling $7 million. The slow recovery of the European economic
environment since the 2009 financial crisis negatively impacted profitability of this mill. Recoverable amount was based on selling price of
assets as it was higher than the income approach.
In the second quarter, the Specialty Products Group recorded impairment charges of $2 million on property, plant and equipment and $3
million on spare parts due to sustained challenging business conditions for a plant manufacturing consumer goods made from recovered
plastics in its consumer products sub-segment. On September 30, 2014, the plant was sold to Laurent Lemaire, a director and major shareholder
of the Corporation, at a value determined to be fair by the independent members of the Board. The independent directors of the Board reviewed
all options for this business and determined that the sale to Mr. Lemaire was in the best interest of the Corporation and the employees of the
consumer plastics business. The Group also recorded impairment charges of $3 million on other assets.
In the fourth quarter, the Specialty Product Group reviewed the recoverable amount of its flexible film activities CGU and recorded an impairment
charge of $6 million on property, plant and equipment. Sustained low shipments in this sector do not generate enough profitability to support
the carrying value of property plant and equipment. Recoverable amount was based on selling price of assets as it was higher than the income
approach.
2013
The Containerboard Group recorded an impairment charge of $1 million due to the re-evaluation of a note receivable (in Other assets) from
a 2011 business disposal.
The Boxboard Europe Group reviewed the recoverable amount of its Magenta and Marzabotto (both in Italy) as well as its Iberica, Spain,
recycled boxboard manufacturing mills, and recorded impairment charges on property, plant and equipment totaling $7 million. The slow
recovery of the European economic environment since the 2009 financial crisis negatively impacted profitability of these mills and led to the
consolidation of our recycled boxboard activities in Europe. Recoverable amount was based on selling price of assets as it was higher than
the income approach.
The Specialty Products Group also reviewed the recoverable amount of its honeycomb activities CGU and recorded an impairment charge
of $2 million on a client list. Low shipments in this sector does not generate enough profitability to support the carrying value of this intangible
assets with a finite life.
The Tissue Papers Group recorded a $17 million reversal of impairment on its Memphis, Tennessee, manufacturing mill. We had initially
recorded an impairment charge of $22 million at transition date to IFRS on January 1, 2010, due to operational challenges. Since then, the
Corporation implemented a Group best practices program to maximize efficiency at all of its plants. These actions contributed to solve operating
difficulties at the Memphis mill.
B. GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Containerboard's goodwill of $277 million is allocated to all Containerboard's CGUs.
• Specialty Products' goodwill is allocated to all Cascades Recovery CGUs, $13 million, and the partitioning activities CGU, $2 million.
• Tissue Papers' goodwill of $36 million and trademarks of $2 million are allocated to all Tissue Papers' CGUs.
• Water rights of $5 million are allocated to RdM's CGU.
The Corporation tested its Containerboard goodwill for impairment. As a result of this impairment test, the Corporation concluded that the
recoverable amount of the CGUs was in excess of $458 million over their carrying amount, thus no impairment charge was necessary. With
all other variables held constant, a decrease in the terminal growth rate of 11%; a rise in the discounting rate of 4%, a decrease in the terminal
shipments of 133,000 s.t., or a decrease in the terminal exchange rate of $0.09 would reduce the excess of $458 million to nil.
119
119
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements The Corporation applied the income approach in determining fair value less cost of disposal and used the following key assumptions (level
2 inputs):
Terminal growth rate
Discounting rate
Terminal exchange rate (CA$/US$)
Terminal shipments (manufacturing only)
2014
2013
CONTAINERBOARD
CONTAINERBOARD
2%
9.5%
1.15
$
2%
9.5%
1.10
888,000 s.t.
903,000 s.t.
$
With regards to other goodwill, all impairment testing resulted in a significant excess of recoverable amount compared to the carrying amount
of the respective goodwill.
In 2013, the Corporation also tested the goodwill allocated to its honeycomb activities CGU. The Corporation used the income approach to
determine the recoverable amount and we concluded it was not enough to support the carrying value of the goodwill. Level 2 inputs were
used to measure fair value. The Corporation recorded an impairment charge of $4 million on the goodwill of this CGU.
C. RESTRUCTURING COSTS
Restructuring costs are detailed as follows:
(in millions of Canadian dollars)
Containerboard
Boxboard Europe
Tissue Papers
2014
2013
—
1
1
2
2
3
—
5
2014
The Boxboard Europe Group also recorded severances of $1 million in relation to previous years' plant closures.
The Tissue Papers Group recorded severances of $1 million as part of its consumer products activities restructuring.
2013
The Containerboard Group recorded a $1 million provision relating to an onerous lease contract and additional severances provisions totaling
$1 million relating to the consolidation of its Ontario converting activities announced in 2012.
The Boxboard Europe Group recorded severances totaling $3 million in relation to the consolidation of its recycled boxboard activities in Italy
and Spain.
NOTE 25
ADDITIONAL INFORMATION
A. CHANGES IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Accounts receivable
Current income tax assets
Inventories
Trade and other payables
Current income tax liabilities
2014
2013
18
(6)
(7)
(19)
1
(13)
37
1
(29)
1
(5)
5
120
120
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements B. FINANCING EXPENSE AND INTEREST EXPENSE ON EMPLOYEE FUTURE BENEFITS
(in millions of Canadian dollars)
Interest on long-term debt
Interest income
Amortization of financing costs
Other interest and banking fees
Interest on employee future benefits
Net financing expense
NOTE 26
FINANCIAL INSTRUMENTS
2014
97
(5)
5
4
6
107
2013
99
(4)
5
4
8
112
26.1 FAIR VALUE OF FINANCIAL INSTRUMENTS
The classification of financial instruments as at December 31, 2014 and 2013, along with the respective carrying amounts and fair values, is
as follows:
(in millions of Canadian dollars)
NOTE
CARRYING AMOUNT
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
2014
2013
Financial assets at fair value through profit or loss
Derivatives
Financial assets available for sale
Other investments
Investments in shares
Financial liabilities at fair value through profit or
loss
Derivatives
Financial liabilities at amortized cost
Long-term debt
Derivatives designated as hedge
Asset derivatives
Liability derivatives
26.4
26.4
25
3
1
(41)
25
3
1
(41)
9
6
1
9
6
1
(35)
(35)
(1,596)
(1,608)
(1,579)
(1,640)
—
(18)
—
(18)
(9)
(14)
(9)
(14)
26.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount of consideration that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants as at the measurement date.
(i) The fair values of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables
and provisions approximate their carrying amounts due to their relatively short maturities.
(ii) The fair value of investments in shares held for trading is based on observable market data and mainly represents the Corporation's
investment in Junex Inc., which is quoted on the Toronto Stock Exchange.
(iii) The fair value of long-term debt is based on observable market data and on the calculation of discounted cash flows. Discount rates were
determined based on local government bond yields adjusted for the risks specific to each of the borrowings and the credit market liquidity
conditions.
26.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
The following table presents information about the Corporation's financial assets and financial liabilities measured at fair value on a recurring
basis as at December 31, 2014 and 2013 and indicates the fair value hierarchy of the Corporation's valuation techniques to determine such
fair value. Three levels of inputs that may be used to measure fair value are:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar
assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect Management's estimates of assumptions that market participants would
use in pricing the asset or liability.
121
121
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements (in millions of Canadian dollars)
Financial assets
Other investments
Investments in shares held for trading
Derivative financial assets
Total
Financial liabilities
Derivative financial liabilities
Total
(in millions of Canadian dollars)
Financial assets
Other investments
Investments in shares held for trading
Derivative financial assets
Total
Financial liabilities
Derivative financial liabilities
Total
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
2014
3
1
25
29
(59)
(59)
—
1
—
1
—
—
3
—
25
28
(59)
(59)
—
—
—
—
—
—
2013
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
6
1
18
25
(49)
(49)
—
1
—
1
—
—
6
—
18
24
(49)
(49)
—
—
—
—
—
—
26.4 FINANCIAL RISK MANAGEMENT
The Corporation's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow
interest rate risk and price risk), credit risk and liquidity risk. The Corporation's overall risk management program focuses on the unpredictability
of the financial market and seeks to minimize potential adverse effects on the Corporation's financial performance. The Corporation uses
derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department and a management committee acting under policies approved by the Board
of Directors. They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides guidance for
overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial
instruments and non-derivative financial instruments, and investment of excess liquidity.
Summary
(in millions of Canadian dollars)
ASSETS
LIABILITIES
2014
RISK
Currency risk
Price risk
Total
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
26.4 A) (i)
26.4 A) (ii)
—
1
1
16
8
24
16
9
25
(3)
(11)
(14)
(37)
(8)
(45)
(40)
(19)
(59)
2013
(in millions of Canadian dollars)
ASSETS
LIABILITIES
RISK
Currency risk
Price risk
Interest risk
Total
122
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
9
7
—
16
9
9
—
18
(1)
(8)
(1)
(10)
(28)
(11)
—
(39)
(29)
(19)
(1)
(49)
26.4 A) (i)
26.4 A) (ii)
26.4 A) (iii)
—
2
—
2
122
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements A. MARKET RISK
(i) Currency risk
The Corporation operates internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export of
goods produced in Canada, the United States, France, Sweden, Italy and Germany. Foreign exchange risk arises from future commercial
transactions, recognized assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases and
debt.
The Corporation manages the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option
instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. The Corporation may designate these
foreign exchange forward contracts as a cash flow hedge of future anticipated sales, purchases, interest expense and repayment of long-
term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments designated as hedges are recorded
in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to sales, cost
of sales, interest expense or foreign exchange loss (gain) on long-term debt in the period in which the respective hedged item affected earnings.
Management has implemented a policy for managing foreign exchange risk against its functional currency. The Corporation's risk management
policy is to hedge 25% to 90% of anticipated cash flows in each major foreign currency for the next 12 months and to hedge 0% to 75% for
the subsequent 24 months.
In 2014, approximately 29% of sales from Canadian operations were made to the United States and 15% of sales from French and Italian
operations were made in countries whose currencies were other than the Euro.The following table summarizes the Corporation's commitments
to buy and sell foreign currencies as at December 31, 2014 and 2013:
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2014
Repayment of long-term debt
Derivatives designated as held for trading and reclassified in
Foreign exchange loss (gain) on long-term debt:
Foreign exchange forward contracts to buy (US$ for CAN$)
Foreign exchange forward contracts to buy (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to buy US$ (US$ for CAN$)
Sub-total
Forecasted sales
Derivatives designated as held for trading and reclassified in Loss
(gain) on derivative financial instruments:
Foreign exchange forward contracts to sell (US$ for CAN$)
Currency option instruments to sell (US$ for CAN$)
Currency option instruments to sell (US$ for CAN$)
Sub-total
Total
0.9965
1.06
1.1167
1.15
1.0225
December 2017 US$
January 2020 US$
December 2017 US$
January 2020 US$
January 2020 US$
1.1580
1.1098
1.1286
0 to 12 months US$
0 to 12 months US$
13 to 24 months US$
150
50
300
100
200
23
45
45
25
4
(29)
(10)
(8)
(18)
—
(2)
(4)
(6)
(24)
In 2014, the Corporation did offset $13 million in derivative assets against $34 million in derivative liabilities as we intend to settle the derivatives
on a net basis.
123
123
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2013
Repayment of long-term debt
Derivatives designated as cash flow hedges and reclassified in
Foreign exchange gain on long-term debt:
Foreign exchange forward contracts to buy (US$ for CAN$)
0.9965
December 2017 US$
150
Sub-total
Derivatives designated as held for trading and reclassified in
Foreign exchange loss (gain) on long-term debt:
Foreign exchange forward contracts to buy (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to buy US$ (US$ for CAN$)
Sub-total
Forecasted sales
Derivatives designated as cash flow hedges and reclassified in
Sales:
Foreign exchange forward contracts to sell (US$ for CAN$)
Foreign exchange forward contracts to buy (€ for US$)
Foreign exchange forward contracts to sell (GBP for SEK)
Foreign exchange forward contracts to sell (€ for SEK)
Sub-total
Derivatives designated as held for trading and reclassified in Loss
(gain) on derivative financial instruments:
Currency option instruments to sell (US$ for CAN$)
Currency option instruments to sell (US$ for CAN$)
Sub-total
Total
1.06
1.1167
1.15
1.0225
1.0484
1.3399
10.736
9.0010
January 2020 US$
December 2017 US$
January 2020 US$
January 2020 US$
0 to 12 months US$
0 to 12 months US$
0 to 12 months £
0 to 12 months €
1.0427
1.0314
0 to 12 months US$
13 to 24 months US$
50
300
100
200
15
2.4
2
2.8
35
25
13
13
1
(17)
(6)
(10)
(32)
—
—
—
—
—
—
(1)
(1)
(20)
In 2013, the Corporation also paid US$4 million ($4 million) for the settlement of derivative financial instruments related to its 7.25% unsecured
senior notes and US$10 million ($10 million) for the settlement of derivative financial instruments related to its 6.75% unsecured senior notes.
In 2013, the Corporation did offset $5 million in derivative assets against $22 million in derivative liabilities as we intend to settle the derivatives
on a net basis.
The fair values of foreign exchange forward contracts and currency options are determined using the discounted value of the difference
between the value of the contract at expiry calculated using the contracted exchange rate and the exchange rate the financial institution would
use if it renegotiated the same contract under the same conditions as at the consolidated balance sheet date. The discount rates are adjusted
for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments, the Corporation considers
master netting agreements, if applicable.
In 2014, if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant,
operating income before depreciation for the year would have been approximately $4 million lower, based on the net exposure of total US
sales less US purchases of the Corporation's Canadian operations and operating income before depreciation of the Corporation's US operations
but excluding the effect of this change on the denominated working capital components. The interest expense would have remained relatively
stable.
In 2014, if the Canadian dollar had strengthened by $0.01 against the Euro with all other variables held constant, operating income before
depreciation for the year would have been approximately $1 million lower following the translation of operating income of the Corporation's
European operations.
124
124
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in ''Accumulated other comprehensive income (loss)'', net of related income taxes.
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the
Euro as at December 31, 2014 and 2013. The calculation includes the effect of currency hedges of net investment in US foreign entities and
assumes that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2014 and
2013, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change:
(in millions of Canadian dollars)
10% change in the CAN$/US$ rate
10% change in the CAN$/Euro rate
BEFORE HEDGES
HEDGES
93
4
52
—
2014
NET IMPACT
41
4
BEFORE HEDGES
HEDGES
80
7
67
—
2013
NET IMPACT
13
7
(ii) Price risk
The Corporation is exposed to commodity price risk on old corrugated containers, electricity and natural gas. The Corporation uses derivative
commodity contracts to help manage its production costs. The Corporation may designate these derivatives as cash flow hedges of anticipated
purchases of raw material, natural gas and electricity. Gains or losses from these derivative financial instruments designated as hedges are
recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to
''Cost of sales'' in the same period as the respective hedged item affects earnings.
The fair value of these contracts is as follows:
2014
QUANTITY
MATURITY
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Electricity
284,904 MWh
2015 to 2017
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective
portion)
Natural gas:
Canadian portfolio
US portfolio
Total
9,336,800 GJ
3,636,000 mmBtu
2015 to 2018
2015 to 2018
—
(12)
(6)
(18)
2013
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Old corrugated containers
Sorted office papers
Electricity
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective
portion)
Natural gas:
Canadian portfolio
US portfolio
Total
QUANTITY
MATURITY
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
10,200 s.t.
12,000 s.t.
2014
2014
375,888 MWh
2014 to 2017
11,525,060 GJ
4,776,300 mmBtu
2014 to 2018
2014 to 2018
—
—
—
(13)
(5)
(18)
125
125
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements In 2011, as part of the sale of its Versailles boxboard mill, the Corporation also entered into an agreement to sell natural gas to the acquirer.
The acquirer went bankrupt in 2014 and the fair value of this agreement has been written down to nil as at December 31, 2014 (2013 -
$1 million asset).
In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair value
as at December 31, 2014 was $8 million (2013 - $7 million).
The fair value of derivative financial instruments other than options is established utilizing a discounted future expected cash flows method.
Future expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying
financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected cash
flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the contract for which it
represents a liability (subject to the application of relevant credit support enhancements). The fair value of derivative financial instruments
that represent options is established utilizing similar methods that reflect the impact of the potential volatility of the financial index underlying
the option on future expected cash flows.
The table below shows the effect of changes in the price of old corrugated containers, natural gas and electricity as at December 31, 2014
and 2013. The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single
change in price.
The exposures used in the calculations are the commodity consumption and the hedging level as at December 31, 2014 and 2013, with the
hedging instruments being derivative commodity contracts.
Consolidated commodity consumption: Price change effect before tax.
2014
2013
(in millions of Canadian dollars1)
BEFORE HEDGES
HEDGES
NET IMPACT
BEFORE HEDGES
HEDGES
NET IMPACT
US$15/s.t. change in recycled paper price
US$30/s.t. change in commercial pulp price
US$1/mmBTU. change in natural gas price
US$1/MWh change in electricity price
28
5
9
2
—
—
5
—
28
5
4
2
30
7
9
2
—
—
5
—
30
7
4
2
1 Sensitivity calculated with an exchange rate of 1.10 CAN$/US$ for 2014 and 1.03 CAN$/US$ for 2013.
(iii) Interest rate risk
The Corporation has no significant interest-bearing assets.
The Corporation's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash
flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk.
When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact
on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run
only for liabilities that represent the major interest-bearing positions. As at December 31, 2014, approximately 23% (2013 - 33%) of the
Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as at December 31, 2014 the impact on interest expense of a 100-basis point change in rate would
be approximately $4 million (impact on net earnings is approximately $3 million).
The Corporation has swaps maturing in 2015 and up to 2017 on a notional amount up to $50 million. As at December 31, 2014, these
agreements are recorded as an asset at a fair value of nil (2013 - nil). The Corporation also holds interest rate swaps through RdM. These
swaps are contracted to fix the interest rate on a notional amount of €8 million and are maturing in 2015 and 2016. Fair value of these
agreements is nil as at December 31, 2014 (December 31, 2013 - $1 million liability).
(iv) Loss (gain) on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized loss (gain) on derivative financial instruments
Realized loss on derivative financial instruments
126
126
2014
6
—
6
2013
(6)
1
(5)
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements B. CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with creditworthy financial institutions.
The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation's credit
policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the Corporation
believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for the management
of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable to meet its obligations.
Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method,
less provision for doubtful accounts. An allowance for doubtful accounts of trade receivables is established when there is objective evidence
that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties
of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. Each trade receivable balance is evaluated separately to identify impairment. The
amount of the allowance for doubtful accounts is the difference between the asset's carrying amount and the present value of estimated cash
flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recorded in the
consolidated statement of earnings in Selling and administrative expenses. When a trade receivable is uncollectable, it is written off against
the allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are credited against Selling and administrative
expenses in the consolidated statement of earnings.
Loans and notes receivables from business disposals are recognized at fair value. There is no past due amount as at December 31, 2014.
127
127
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements C. LIQUIDITY RISK
Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities
of financial liabilities as at December 31, 2014 and 2013:
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Unsecured senior notes
Other debts of subsidiaries
Other debts without recourse to the Corporation
Derivative financial liabilities
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Unsecured senior notes
Other debts of subsidiaries
Other debts without recourse to the Corporation
Derivative financial liabilities
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN ONE
YEAR
BETWEEN ONE
AND TWO
YEARS
BETWEEN TWO
AND FIVE
YEARS
MORE THAN FIVE
YEARS
2014
46
557
332
46
557
347
1,175
1,647
31
73
59
37
77
59
2,273
2,770
46
557
13
72
11
36
14
749
—
—
334
71
6
17
8
436
—
—
—
215
11
19
24
269
—
—
—
1,289
9
5
13
1,316
2013
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN ONE
YEAR
BETWEEN ONE
AND TWO
YEARS
BETWEEN TWO
AND FIVE
YEARS
MORE THAN FIVE
YEARS
56
590
484
989
39
80
49
56
590
514
1,354
46
80
49
2,287
2,689
56
590
14
78
17
25
10
790
—
—
15
77
9
30
7
—
—
485
890
10
19
18
138
1,422
—
—
—
309
10
6
14
339
As at December 31, 2014, the Corporation had unused credit facilities of $495 million (December 31, 2013 - $303 million), net of outstanding
letters of credit of $38 million (December 31, 2013 - $56 million).
D. OTHER RISK
FACTORING OF ACCOUNTS RECEIVABLE
The Corporation sells its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution.
The Corporation uses factoring of receivables as a source of financing by reducing its working capital requirements. When the receivables
are sold, the Corporations removes them from the balance sheet, recognizes the amount received as the consideration for the transfer and
records a loss on factoring which is included in ''Financing expense''. As at December 31, 2014, the off-balance sheet impact of the factoring
of receivables amounted to $27 million (€20 million). The Corporation expects to continue to sell receivables on an ongoing basis. Should it
decide to discontinue this contract, its working capital and bank debt requirements would increase.
128
128
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 27
COMMITMENTS
a. The Corporation leases various properties, vehicles and equipment under non-cancellable operating lease agreements.
Future minimum payments under operating leases are as follows:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
More than five years
b. Capital and raw material commitments
2014
22
36
6
2013
21
36
9
Capital expenditures and raw material contracted at the end of the reporting date but not yet incurred are as follows:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
More than five years
NOTE
28
28
28
PROPERTY,
PLANT AND
EQUIPMENT
2014
INTANGIBLE
ASSETS
RAW MATERIAL
6
—
—
6
2
—
—
2
71
287
107
465
PROPERTY,
PLANT AND
EQUIPMENT
13
1
—
14
2013
INTANGIBLE
ASSETS
RAW MATERIAL
2
2
—
4
50
201
126
377
129
129
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements NOTE 28
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
2014
Sales to related parties
Purchases from related parties
2013
Sales to related parties
Purchases from related parties
JOINT VENTURES
ASSOCIATES
52
28
52
31
72
153
58
79
These transactions occurred in the normal course of operations and are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
In addition to related party balance presented elsewhere in these consolidated financial statements, the following balances were outstanding
at the end of the reporting period:
(in millions of Canadian dollars)
Receivables from related parties
Joint ventures
Associates
Payables to related parties
Joint ventures
Associates
December 31, 2014
December 31, 2013
6
13
9
18
11
9
10
15
The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There
are no provisions held against receivables from related parties. The payables to related parties arise mainly from purchase transactions. The
payables bear no interest.
Starting in June 2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the
Corporation has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to
purchase the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in commitments in Note
27 is the minimum amount to be paid to Greenpac which corresponds to the potential lost gross margin on 340,000 tons.
On September 30, 2014, the Corporation sold a plant manufacturing consumer goods made from recovered plastics in its Specialty Products
Group to Laurent Lemaire, a director and major shareholder of the Corporation, at a value determined to be fair by the independent members
of the Board. The independent directors of the Board reviewed all options for this business and determined that the sale to Mr. Lemaire was
in the best interest of the Corporation and the employees of the consumer plastics business.
130
130
AnnuAl report CAsCAdes 2014 notes to consolidated financial statements BOARD OF DIRECTORS
Cascades’ Board of Directors (BoD) and management believe that quality corporate governance helps ensure that the Corporation
is run effi ciently and investor confi dence is maintained. In order to stay the course in this regard, Cascades regularly reviews its
governance practices to remain in compliance with applicable legislation and to improve effi ciency.
The composition of the Board of Directors must be carefully determined since its responsibilities include ensuring good corporate
governance, among other things. Cascades draws on the expertise of a highly experienced team of directors while recognizing the
importance of independent directors. As of December 31, 2014, seven of the twelve Board members were independent. They meet at
least once yearly with no non-independent directors or senior management present. New BoD members are also offered an
orientation and training program, to familiarize themselves with Cascades’ activities as well as the issues and challenges it faces.
1
5
9
2
6
10
3
7
11
4
8
12
1
Bernard Lemaire
Director of the Corporation
Kingsey Falls, Québec Canada
Director since 1964
Non-Independent
2
Laurent Lemaire
Vice–Chairman of the Board
Warwick, Québec Canada
Director since 1964
Non-Independent
5
Louis Garneau
President
Louis Garneau Sports Inc.
Saint-Augustin-de-Desmaures
Québec Canada
Director since 1996
Independent
9
Georges Kobrynsky
Director of companies
Montréal, Québec Canada
Director since 2010
Independent
cAscADes 2014
6
Sylvie Lemaire
Director of companies
Otterburn Park, Québec Canada
Director since 1999
Non-Independent
10
Élise Pelletier
Management and Human
Resources Consultant
Saint-Bruno-de-Montarville
Québec Canada
Director since 2012
Independent
3
Alain Lemaire
Executive Chairman
of the Board
Kingsey Falls, Québec Canada
Director since 1967
Non-Independent
7
David McAusland
Partner
McCarthy Tétrault
Montréal, Québec Canada
Director since 2003
Independent
11
Sylvie Vachon
President and Chief
Executive Offi cer of
The Montréal Port Authority
Montréal, Québec Canada
Director since 2013
Independent
4
Mario Plourde
President and Chief Executive
Offi cer of Cascades Inc.
Kingsey Falls, Québec, Canada
Director since November 2014
Non-Independent
8
James B.C. Doak
President and Managing Director
Megantic Asset Management Inc.
Toronto, Ontario Canada
Director since 2005
Independent
12
Laurence G. Sellyn
Executive Vice-President,
Chief Financial and
Administrative Offi cer,
Gildan Activewear Inc.
Montréal, Québec Canada
Director since 2013
Independent
131
HISTORICAL FINANCIAL INFORMATION - 10 YEARS
For the years ended December 31,
(in millions of Canadian dollars, except per share amounts and ratios) (unaudited)
Historical financial information are not adjusted to reclass the impact of discontinued operations and IFRS for years ended prior to 2011.
Highlights - Consolidated Results
Sales
Cost of sales and expenses
Operating income before depreciation and amortization (OIBD) excluding specific items
Depreciation and amortization
Operating income excluding specific items
Financing expense and interest expense on employee future benefits
Foreign exchange loss (gain) on long-term debt and financial instruments
Specific items
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Net earnings (loss) attributable to non-controlling interest
Net earnings (loss)
Net earnings (loss) per common share
Highlights - Consolidated Cash Flow
Cash flow generated by operating activities
Cash flow from operations
per common share
Purchases of property, plant and equipment net of proceeds on disposal
Business acquisitions and cash from a joint venture
Proceed from business disposals
Net change in long-term debt
Dividends on common shares
per common share
Dividend yield
Highlights - Consolidated Balance Sheet (As at December 31)
Current assets less current liabilities
Property, plant & equipment
Total assets
Total long-term debt
Non-controlling interests
Shareholders' equity
per common share
Stock Market Highlights
Shares issued and outstanding (in millions)
Trading volume (in millions)
Market capitalization
Closing price
High
Low
Key Financial Ratios
Net earnings (loss)/sales
Sales/total assets*
Total assets/average Shareholders' equity*
Return on Shareholder's equity*
Return on total assets (OIBD/average total assets)*
OIBD/sales
OIBD/interest
Current assets less current liabilities/sales*
Net debt/OIBD*
Total debt/total debt + Shareholders' equity
Price to earnings
Price to book value
* Prior to 2007, ratios are calculated excluding the impact of the Norampac acquisition.
132
131
IFRS
2014
3,953
3,595
358
183
175
108
30
191
(154)
(11)
—
4
(147)
(1.57)
$
$
250
251
2.67
172
—
(36)
88
15
0.16
$
2.3 %
308
1,592
3,673
1,596
110
893
9.48
$
94.2
45.0
661
7.02
7.60
5.64
$
$
$
(3.7)%
1.1X
3.7X
(14.9)%
9.5 %
9.1 %
3.3X
7.8 %
4.5X
64.8 %
N/A
0.7X
$
$
$
$
$
$
$
IFRS
2013
3,849
3,497
352
182
170
115
(2)
28
29
12
3
3
11
0.11
232
226
2.41
136
—
—
(30)
15
0.16
2.3%
414
1,684
3,831
1,579
113
1,081
11.52
93.9
25.2
646
6.88
6.92
4.07
0.3%
1.0X
3.7X
1.1%
9.4%
9.1%
3.1X
10.8%
4.6X
60.2%
62.5
0.6X
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis
2006
2005
IFRS
2012
3,645
3,341
304
199
105
115
(8)
33
(35)
(4)
(2)
(7)
(22)
IFRS
2011
3,760
3,517
243
186
57
100
(4)
(148)
109
27
(14)
(3)
99
2010
3,959
3,561
398
212
186
112
4
65
5
—
(15)
3
17
2009
3,877
3,412
465
218
247
118
31
33
65
23
(17)
(1)
60
2008
4,025
3,720
305
213
92
103
24
54
(89)
(29)
(8)
2
(54)
2007
4,033
3,693
340
208
132
106
(59)
7
78
6
(27)
3
96
3,481
3,167
314
163
151
83
—
76
(8)
(3)
(8)
—
3
$
$
$
$
$
$
$
(0.23)
$
1.03
$
0.18
$
0.61
$
(0.55)
$
0.96
$
0.04
$
$
199
154
1.64
141
14
—
(54)
15
$
115
121
1.26
110
60
(292)
143
15
$
228
246
2.54
131
3
—
30
16
$
355
303
3.10
171
69
—
59
16
$
126
150
1.52
184
(5)
47
149
16
53
163
1.64
169
10
37
91
16
191
174
$
2.15
$
110
572
94
178
13
0.16
$
3.9 %
0.16
$
3.6%
0.16
$
2.4%
0.16
$
1.8%
0.16
$
4.6 %
0.16
$
1.9%
0.16
$
1.2%
295
1,659
3,694
1,475
116
978
10.42
$
$
$
$
93.9
20.2
385
4.10
5.18
3.85
(0.6)%
1.0X
3.7X
(2.2)%
8.2 %
8.3 %
2.6X
8.1 %
5.0X
61.4 %
N/A
0.4X
400
1,703
3,728
1,407
136
1,029
10.87
94.6
33.8
419
4.43
7.75
3.51
$
$
$
$
2.6%
1.0x
3.3x
8.7%
6.5%
6.5%
2.4x
10.6%
6.1x
59.3%
4.3x
0.4x
479
1,777
3,724
1,395
24
1,257
484
1,912
3,792
1,469
21
1,304
13.01
$
13.41
$
$
$
$
96.6
57.7
647
6.70
9.80
5.71
0.4%
1.1x
2.9x
1.3%
10.6%
10.1%
3.6x
12.1%
3.6x
53.7%
37.2x
0.5x
$
$
$
97.2
79.8
869
8.94
9.10
1.70
1.5%
1.0x
3.0x
4.7%
11.9%
12.0%
3.9x
12.5%
3.3x
54.3%
14.7x
0.7x
132
522
2,030
4,031
1,708
22
1,256
12.74
98.5
39.8
339
3.44
8.90
3.00
$
$
$
$
(1.3)%
1.0x
3.3x
(4.4)%
7.8 %
7.6 %
3.0x
13.0 %
5.9x
59.1 %
N/A
0.3x
581
1,886
3,769
1,574
25
1,199
574
2,063
3,911
1,666
19
1,157
12.09
$
11.62
$
99.1
63.2
837
8.44
15.80
7.46
$
$
$
2.4%
1.1x
3.2x
8.1%
8.9%
8.4%
3.2x
14.4%
4.7x
57.5%
8.8x
0.7x
$
$
$
99.5
31.7
1,317
13.23
14.78
9.66
0.1%
1.2x
3.2x
0.3%
10.6%
9.0%
3.8x
13.3%
3.8x
59.6%
330.8x
1.1x
3,862
3,600
262
174
88
83
(10)
159
(144)
(40)
(7)
—
(97)
(1.19)
100
100
1.23
121
52
—
91
13
0.16
1.6 %
530
1,562
3,046
1,297
—
897
11.10
80.8
23.6
812
10.05
13.95
7.35
(2.5)%
1.3x
3.1x
(9.9)%
8.4 %
6.8 %
3.2x
13.7 %
5.0x
59.9 %
N/A
0.9x
133
AnnuAl report CAsCAdes 2014 management’s discussion & analysis i results analysis summary of
summary of
production
capacity
capacity
(as at December 31, 20141)
SECTORS/SEGMENTS
REGION
TYPE OF OPERATION
MAIN MARKETS/PRODUCTION
PACKAGING PRODUCTS
CONTAINERBOARD
North
America
Manufacturing
Recycled linerboard and corrugating medium
from virgin and recycled fi bre
White-top linerboard
Converting
Variety of corrugated packaging containers
Corrugated sheets
Specialty packaging
BOXBOARD EUROPE
Europe
Manufacturing
SPECIALTY PRODUCTS
North
America
and
Europe
North
America
Industrial
Packaging
Consumer Products
Packaging
Coated virgin boxboard (coated duplex, GC)
Coated recycled boxboard (white-lined chipboard
duplex, GD)
Recycled linerboard
Uncoated board
Papermill packaging (roll headers and wrappers)
Honeycomb packaging products
Laminated boards
Moulded pulp products
– Cup trays
– Filler fl ats
Plastic products
– Packaging for food industry (meat trays, translucent
containers, foam plates and bowls)
NUMBER
OF UNITS 2
CAPACITY 3
65
1,5275
22
12 billion sq.ft.
(2014 shipments,
including inter-
company sales)
74
1,1684
125
4615
65
55M kg5
Recovery
Collection, sorting and recycling activities
18
TISSUE PAPERS
Other Products
Backing for vinyl fl ooring
Deinked pulp
North
America6
Manufacturing
Parent rolls
Manufacturing
and converting
Parent rolls
Retail and away-from-home markets
– Paper towels, paper hand towels, bathroom tissue,
facial tissue, paper napkins
Converting
Retail and away-from-home markets
– Paper towels, paper hand towels, bathroom tissue,
facial tissue, paper napkins
Industrial wipes
TOTAL
2
7
4
9
93
1,433
(processed
in 2014)
136
382
261
n. a.
3,9354
(manufacturing
only)
1 Excluding discontinued operations.
2 Production and sorting facilities only; excluding sales offi ces, distribution and transportation hubs and corporate offi ces. Including the Greenpac mill, in which we have an approximately 60% stake.
3 Thousands of short tons, unless otherwise noted. Practical capacity.
4 Including all the units of Reno de Medici S.p.A. in which we had an approximately 58% stake. Excluding the Magenta plant and sheeting centres.
5 Including 100% of the capacity of our joint ventures.
6 Excluding converting activities at Rockingham; including new converting facility at Wagram.
Cascades also owns a 34% interest in Boralex Inc., a major independent power producer (940 MW of installed capacity) active in Canada, the U.S. and France.
Boralex is a publicly traded company, and additional information is available at www.boralex.com.
134
ANNuAl reporT
financial highlights
$8.00
$7.50
$7.00
$6.50
$6.00
$5.50
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
CAS–TSX – Closing price ($)
94.2 million
COMMON SHARES
OUTSTANDING
as at December 31, 2014
73 million
TOTAL VOLUME
TRADED
in 2014
$0.04
QUARTERLY DIVIDEND
PER SHARE PAID
in 2014
2.3%
ANNUAL
DIVIDEND YIELD
as at December 31, 2014
$7.60
INTRADAY HIGH
in 2014
$5.64
INTRADAY LOW
in 2014
$661 Million
MARKET CAPITALIZATION
as at December 31, 2014
Moody’s: Ba2 (stable)
S&P: B+ (stable)
CORPORATE CREDIT RATINGS
as at December 31, 2014
Cascades share
price in 2014
Symbol
CAS – TSX
(ON THE TORONTO
STOCK EXCHANGE)
S&P/ TSX
CLEAN TECHNOLOGY INDEX
S&P/ TSX
SMALL CAP INDEX
BMO
SMALL CAP INDEX
financial snapshot
(In millions of Canadian dollars, unless otherwise noted)
SALES
Operating income before depreciation and amortization (OIBD)1
% of sales
Operating income
% of sales
Net earnings (loss)
per share
Dividend per share
EXCLUDING SPECIFIC ITEMS1
Operating income before depreciation and amortization (OIBD)1
% of sales
Operating income
% of sales
Net earnings
per share
Return on assets1, 2
Return on capital employed1, 3
FINANCIAL POSITION (AS AT DECEMBER 31)
Total assets
Capital employed3
Net debt1
Net debt/OIBD1, 4, 7
Shareholders’ equity
per share
Working capital on sales8
KEY INDICATORS
Total shipments (in ‘000 of s.t.)5
Manufacturing capacity utilization rate6
US$/CAN$ - Average rate
2014
3,561
311
8.7%
137
3.8%
(147)
$(1.57)
$0.16
340
9.5%
166
4.7%
20
$0.21
9.4%
4.1%
3,673
3,200
1,613
4.7x
893
$9.48
12.3%
2,924
93%
$0.91
2013
3,370
343
10.2%
176
5.2%
11
$0.11
$0.16
342
10.1%
175
5.2%
29
$0.31
9.3%
4.0%
3,831
3,193
1,612
4.6x
1,081
$11.52
12.9%
2,899
93%
$0.97
2012
3,141
255
8.1%
72
2.3%
(22)
$(0.23)
$0.16
285
9.1%
115
3.7%
5
$0.05
8.1%
2.8%
3,694
3,224
1,535
5.0x
978
$10.42
14.4%
2,765
92%
$1.00
1 See “Forward-looking Statements and Supplemental Information on Non-IFRS Measures” on page 23.
2 Return on assets is a non-IFRS measure defi ned as the last twelve months’ (“LTM”) OIBD excluding specifi c items/LTM quarterly average of total assets. It includes or excludes signifi cant business
acquisitions and disposals respectively in the last twelve months on a pro forma basis. Not adjusted for discontinued operations.
3 Return on capital employed is a non-IFRS measure and is defi ned as the after-tax (30%) amount of the LTM operating income, including our share of core joint ventures, excluding specifi c items,
divided by the LTM quarterly average of capital employed. Capital employed is defi ned as total assets less trade and other payables. It includes or excludes signifi cant business acquisitions and
disposals respectively in the last twelve months on a pro forma basis. Not adjusted for discontinued operations.
4 Adjusted ratio including discontinued operations for 2012 and 2013.
5 Shipment fi gures have not been adjusted for related party or inter-segment eliminations.
6 Defi ned as: Internal and external manufacturing shipments/practical capacity. Adjusted for discontinued operations and excluding the Specialty Products Group.
7 Excluding specifi c items.
8 Percentage of sales = Average LTM working capital/LTM sales. It includes or excludes signifi cant business acquisitions and disposals respectively in the last twelve months on a pro forma basis.
Not adjusted for discontinued operations.
north America
Prince George, BC R
Vancouver, BC
R
Nanaimo, BC R
Victoria, BC R
R Kelowna, BC
R Surrey, BC
C
Richmond, BC
Tacoma, WA C
St. Helens, OR M
R Edmonton, AB
C
R Calgary, AB
St. John’s, NL C
C R Winnipeg, MB
C Moncton, NB
Kingsey Falls, QC
Kingsey Falls, QC
Eau Claire, WI CM
Grand Rapids, MI C
Aurora, IL C
Warrenton, MO C
C Kingman, AZ
Brownsville, TN C
Memphis, TN M
Rockingham, NC C M
C Kinston, NC
C Wagram, NC
C Birmingham, AL
cascades
worldwide
worldwide
LEGEND
Head Offi ce
Containerboard Group
Boxboard Europe Group
Specialty Products Group
Tissue Papers Group
M Manufacturing facility
C Converting facility
CM Converting and
manufacturing facility
P Deinked pulp facility
R Recovery operations
ontario
C Windsor
Ottawa R
C Belleville
M Trenton
C Barrie
Vaughan
C
Mississauga C M
Guelph C
C St. Marys C Kitchener
R Putnam R Brantford
Whitby M
C M R Scarborough
C Toronto
R
C
QUÉBEC
M Trois-Rivières
Berthierville C C
$3.6 billion1
in sales
over 60% of which
are outside canada
Cabano M
Sales to (destination)
2014 (%)
Sales from (source)
2014 (%)
36
26
38
Canada
United States
Europe and others
Property, plant
and equipment 2014 (%)
22
24
54
Canada
United States
Europe and others
25
25
50
Sales from (source)
2014 (%)
Canada
United States
Europe and others
25
25
50
Canada
United States
Europe and others
C Victoriaville
M M CM C C C Kingsey Falls
C C C
Drummondville
Laval C
Lachute CM
Vaudreuil C
C Montréal
R Lachine
C Saint-Césaire
C Granby
CM Candiac
Northeastern united states
EUROPE
Auburn, ME P
Niagara Falls, NY
M M
R Depew, NY
C Lancaster, NY
R Rochester, NY
Schenectady, NY C
M Mechanicville, NY
C Waterford, NY
R Albany, NY
M Arnsberg, DE
M Blendecques, FR
C Châtenois, FR
C Saulcy-sur-Meurthe, FR
La Rochette, FR M
Santa Giustina, IT M
M Ovaro, IT
C Thompson, CT
Ransom, PA M
Pittston, PA C
C Maspeth, NY
M Almazan, ES
Villa Santa Lucia, IT M
1 Excluding discontinued activities.
A HELPING
HAND
TO MAKE
A LASTING
DIFFERENCE
Cascades continues
to work toward achieving
the targets established
in its 2013-2015
Sustainable
Development Plan.
For more information
on our initiatives
in sustainable development:
www.cascades.com/
sustainable-development
Reduce the quantity of energy
purchased to make our products
(GJ/metric tonne)
Increase the
recovery of
waste materials
(kg of waste recovered)
Reduce the amount
of waste water
(m3/ metric tonne)
Source materials from
responsible suppliers
(volume of purchases considered responsible)
Develop and market
new products
(sales from new products)
Reduce occupational
injuries and illnesses
(OSHA frequency rate)
Increase the level of
employee commitment
(engagement rate)
Increase our
contributions to communities
(units having taken at least three initiatives)
Optimize the return
on capital employed
(return on capital employed)
REFERENCE
2013
2015
TARGET
10.74
10.6
2014 10.19
REFERENCE
2013
2015
TARGET
72.8%
71%
2014 69.4%
REFERENCE
2013
2015
TARGET
12.5
10.6
2014 10.5
REFERENCE
2013
2015
TARGET
35%
40%
2014 46%
REFERENCE
2013
2015
TARGET
4.8%
6%
2014 7.7%
REFERENCE
2013
2015
TARGET
3.2
2.5
2014 3.3
REFERENCE
2013
2015
TARGET
55%
65%
2014 55%
REFERENCE
2013
2015
TARGET
50%
85%
2014 50%
REFERENCE
2013
2015
TARGET
4%
6%
2014 4.1%
cascades.com
FSC
Printed on Rolland EnviroMC Satin, 60 lb. Text and Rolland EnviroMC Print, 80 lb. The cover is certifi ed Processed Chlorine Free and is made from 100% postconsumer
fi bre. All papers are certifi ed FSC and EcoLogo and are made from renewable biogas energy.
Production: Communications Department of Cascades — Design: absolu — Prepress and printing: Impart Litho
Photography: Exposeimage, Brühmüller photographe
Printed in Canada
The leftover food from the Annual Report’s photo shoot was donated to the Fondation Lauberivière de Québec. What a great way to avoid waste and give back to
the community!